By David Russell of OptionMonster
NEW YORK -- Dow Chemical (DOW) has been running hard, and traders are betting that the rally will continue all year.
OptionMonster's trade scanners detected the purchase of more than 40,000 January 50 calls for $2.78. Two giant blocks of 20,000 contracts each accounted for almost all the volume, dwarfing the previous open interest of 17,037.
These calls lock in the price where the chemical producer's shares can be bought, letting investors cheaply position for a rally. They now are risking about 5% of the stock's underlying value, which limited the amount of money they can lose in the event of a selloff. At the same time, they stand to benefit from potentially huge leverage if the shares keep climbing through early 2015.
Dow's shares rose 1.29% to $47.83 Wednesday, at one point touching an 8-1/2 year high above $48. The chemical stock has been climbing amid pressure from activist investor Dan Loeb and following a strong earnings report last month. It was also recommended as a long on OptionMonster's Market Action webinar in December.
Total option volume in the name was six times greater than average in the session, with overall calls outnumbering puts by a bullish 13-to-1 ratio.
Russell has no positions in DOW.