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Bulls Come Back to Dow Chemical

By Mike Yamamoto of  OptionMonster

NEW YORK -- Dow Chemical (DOW) attracted bullish option activity on Wednesday for the second session in a row.

On Tuesday, a large upside position was opened in the January contracts. But now traders are looking for a quicker move, as OptionMonster co-founder Jon "DRJ" Najarian noted on CNBC's "Fast Money" program Wednesday night.

About 4,500 September 52 calls were purchased at the same second Wednesday afternoon, all of them for $2.05, according to OptionMonster's tracking systems. This is clearly fresh buying, as open interest in the strike was just 159 contacts before the trade appeared.

These long calls lock in the price where the stock can be purchased through mid-September no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, providing potentially significant leverage, but the contracts will quickly lose value if shares pull back. 

Dow gained 1.02% to $53.64 on Wednesday with reports that the company may sell two specialty-chemical units. The stock has been trending higher for more than a year and is now at its highs from 2005.

Total option volume reached 44,000 contracts Wednesday, compared to a daily average of 8,034 for the last month. Overall calls outnumbered puts by 5 to 1, a reflection of the session's bullish sentiment.

Najarian is long DOW; Yamamoto has no positions in the name.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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