Dow Chemical option bulls and bears on the prowl
Today's tickers: DOW, GLD, ISIS, DTV, SINA, XOM, SPWRA, AGO & SINA
DOW - The Dow Chemical Co.
– Shares of the manufacturer of chemicals and plastic materials
increased 2% during the trading session to $29.45. We observed a mix of
bullish and bearish option plays on the stock today. One investor
appears to have unraveled an in-the-money ratio call spread in the
December contract in order to finance the purchase of 7,500 calls at
the December 28 strike for 1.92 apiece. Further along, in the January
2010 contract, another bullish player rolled a long call position to a
higher strike price. It looks like the investor originally paid between
2.35 to 3.30 in premium to buy 5,000 calls at the now deep-in-the-money
January 24 strike back on September 14, 2009. Today the trader closed
out the December 24 strike calls by selling 5,000 contracts for 5.30
each. The closing sale of the calls was spread against the purchase of
5,000 fresh call options at the higher January 28 strike for about 2.45
premium per contract. Finally, protective plays dominated the March
2010 contract. Two put spreads were established this afternoon. The
first transaction involved the purchased of 5,000 puts at the March 27
strike for 2.08 each, marked against the sale of the same number of
puts at the lower March 20 strike for 47 cents apiece. The net cost of
the trade amounts to 1.61 per contract and yields protection beneath
the breakeven price of $25.39. The other put spread involved the same
number of put options but was transacted at the March 26/19 strikes at
a net cost of 1.38 per contract. Downside protection on this play kicks
in if shares decline through the breakeven point at $24.62 by
expiration day in March.
GLD - SPDR Gold Trust ETF
– More than 253,800 option contracts changed hands on the GLD with
about 30 minutes remaining in the trading day. Investors traded calls
on the exchange-traded fund more than 1.8 times to each put option in
play. Shares of the GLD, which replicates the performance of the price
of gold bullion, are up 0.25% in late-day trading to stand at $111.90.
A large-volume ratio call spread on the fund suggests some investors
expect the price of gold to rise sharply by expiration in January 2010.
Bullish traders bought approximately 15,000 calls at the January 112
strike for an average premium of 3.88 apiece, spread against the sale
of 30,000 calls at the higher January 122 strike for about 1.14 each.
The net cost of putting on the ratio spread amounts to 1.60 per
contract. Investors employing the call spread strategy stand ready to
accumulate maximum potential profits of 8.40 per contract if shares of
the GLD surge 9.5% to $122.00 by expiration.
