Dow Chemical Holds Key Support, Bulls Position for a Rally

By Mike Yamamoto of OptionMonster

NEW YORK -- Dow Chemical (DOW) has been holding key support, and on Thursday the bulls positioned for a rally. 

OptionMonster's tracking systems detected significant upside call volume in the company, ranging from short-term contracts expiring next week to options that come due early next year. 

The Weekly 52 calls expiring a week from Friday stood out the most: Some 9,100 were purchased, mostly for $1.15, dwarfing the previous open interest of 177 contracts in what were clearly new positions. 

The November 55s followed minutes later, trading a quick 7,000, with the largest blocks fetching 81 cents to 95 cents. Volume was more than triple the previous positioning in that strike, which also indicates that new money was put to work. 

Our scanners also found heavy buying in the October 54.50 calls and several other strikes in volume above open interest. 

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

Dow fell 0.73% to $53.13 on Thursday as it continued to consolidate in a range that has been tightening for the last month. The stock bounced twice at its 50-day moving average during that time, which could make some chart watchers think that shares remain in a bullish uptrend. 

The company is also trying to sell its epoxy and chlorine business, with an estimated value of $3.5 billion to $4 billion, according to a Reuters report Thursday.  

Thursday's total option volume in the name was quadruple the daily average for the last month. Overall calls outnumbered puts by a bullish 12-to-1 ratio. 

Yamamoto has no positions in DOW.

 

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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