By David Russell of OptionMonster
Just minutes after the opening bell, OptionMonster's tracking systems detected heavy buying in the September 67.50 calls for 49 cents to 55 cents. We posted our initial alert with about 13,000 trading, but volume in the strike would end the session at 37,400 contracts -- more than 15 times the previous open interest, so these are clearly new positions.
OptionMonster co-founder Pete Najarian highlighted the unusual activity on CNBC's "Halftime Report" yesterday.
These long calls lock in the price where investors can buy the chemical stock, allowing them to position for gains at limited cost. The contracts can also generate significant leverage if a rally unfolds, which is exactly what happened yesterday as those September 67.50 calls doubled to 98 cents by early afternoon.
DuPont shares rose 1.35% to close at $66.20 after trading as high as $66.95 in the session. The stock fell sharply in late June after management cut earnings guidance, then spent a month holding above its 200-day moving average before trying to rebound yesterday.
More than 70,000 options changed hands in the name overall yesterday, compared to 6,600 in a typical session. Calls accounted for a bullish 90 percent of the total.
Russell has no positions in DD; Najarian owns calls in the name.
TheStreet Ratings team rates DU PONT (E I) DE NEMOURS as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate DU PONT (E I) DE NEMOURS (DD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, increase in net income, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Chemicals industry average. The net income increased by 3.9% when compared to the same quarter one year prior, going from $1,030.00 million to $1,070.00 million.
- The debt-to-equity ratio is somewhat low, currently at 0.69, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.20, which illustrates the ability to avoid short-term cash problems.
- Net operating cash flow has significantly increased by 872.22% to $350.00 million when compared to the same quarter last year. In addition, DU PONT (E I) DE NEMOURS has also vastly surpassed the industry average cash flow growth rate of -67.50%.
- You can view the full analysis from the report here: DD Ratings Report