Options: Bullish Action in Dow Chemical
Jud Pyle CFA
01/13/09 - 03:52 PM EST
Shares of
Dow Chemical(DOW Quote) have had a rough couple of weeks and an even rougher couple of months. But today at least one investor was making a bullish bet on shares of DOW.
The Feb 12.5 puts have traded more than 15,000 times today vs. open interest of 10,860. The Feb 17.5 calls also have traded over 15,000 times today vs. open interest of 10,378. You might ask what the big deal is. That is a lot of volume, sure, but there is a lot of open interest as well. Not too unusual.
However, I want to draw your attention here because the puts were sold and the calls were bought simultaneously, as a spread. The investor paid around 30 cents to buy the call and sell the put. This is a bullish trade, because the investor needs the stock to be above $17.80 at expiration.
So what might the investor's motivation be for being this bullish on DOW? For starters, lets note what has happened to DOW in the last couple of weeks. On Dec. 29, shares of DOW fell from $19.34 to $15.32 after a surprise decision by the Kuwaiti government to scrap a joint venture with DOW. The termination of the joint venture also caused shares of
Rohm & Haas(ROH Quote) to tank on concerns that DOW would no longer be able to pay the $78 per share cash price for ROH that it had agreed to this past summer.
But even prior to the drop on Dec. 29, DOW shares had not been faring too well. Between Oct. 10 and Dec. 26, shares of DOW had declined from $24.40 to $19.34. During that time, the
S&P 500 was down less than 2%. So this investor might be thinking that the selloff in DOW might finally be overdone and is using the options to gain upside exposure with more leverage than buying the shares.
A bullish option trade like this does not mean that the end of the slide is over for DOW. But it is at least worth noting that one investor is betting that there could be brighter days ahead for the chemical company's shares.
Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
