Monday, August 25, 2008

Chesapeake Energy, Lots of Call Volume.. Tropical Depression? Energy Price Reversal?

I'm looking at Chesapeake Energy again for a quick trade to the $50 area. From their website, they are the 3rd largest producer of natural gas in the US, and 2nd among independents. They own interests in approximately 39,000 producing natural gas and oil wells and are producing 2.3 billion cubic feet equivalent per day and 92% is natty gas.

Charts From

It looks like CHK was in the low $40s earlier this month, lows not seen since February of this year. It rallied all the way to $75 in July and closed at $48 today. It touched $50 a few days ago and could pierce through that important resistance level if a positive catalyst presents itself. It looks like it has corrected along with price of oil and natural gas. The second chart above shows the comparison between CHK and the Natural Gas ETF (UNG). The Natural Gas ETF is currently at the December 2007 support levels. It appears there could be a near term technical reversal, the sell off in energy is looking tired at the moment..

Looking directly at CHK's call volume compared to puts, it appears that there was massive call buying today at the out of the money SEP 50, and 52.50 strikes.. October didn't see much interest so this looks like near term bullish sentiment. This could be related to the tropical depression forming in the Carribean as well as the Russia/Georgia war or flat out energy price reversal.

Tropical Storm Gustav Forms in Caribbean Near Haiti (Bloomberg)

Gustav, packing winds of about 60 miles (96 kilometers) per hour, was about 165 miles south-southeast of Port-au-Prince, Haiti, and was moving northwest at about 12 miles per hour, according to a National Hurricane Center advisory issued just before 8 p.m. New York time.

Gustav's center may be over Haiti tomorrow and may develop into a hurricane before making landfall, the advisory said.

``We could see a major hurricane by the later part of the week,'' said Jim Rouiller, a senior energy meteorologist with Planalytics Inc., a forecaster based in Wayne, Pennsylvania, whose clients include energy companies. ``Right now, it looks like we have a very dangerous hurricane taking shape over the central parts of the Caribbean.''
Option Data From Yahoo Finance

We'll see what happens with this.