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Most Active Options Update: The Dow Chemical Company (DOW)

The Dow Chemical Company's recent pullback is of no concern to option bulls

by 1/9/2014 2:29 PM
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The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest this afternoon is The Dow Chemical Company (NYSE:DOW).


Calls are outpacing puts on The Dow Chemical Company this afternoon by a margin of more than 5-to-1. The two most active contracts thus far are the January 2014 44-strike call and the February 46 call. The majority of the respective 4,928 and 3,708 contracts traded at each strike has done so on the ask side, and implied volatility is on the rise, pointing to buy-to-open activity.

The volume-weighted average price (VWAP) for the front-month calls is $0.45, meaning speculators will begin to profit with each step north of $44.45 (strike plus the VWAP) DOW takes through next Friday's close, which is when the options expire. Meanwhile, based on a VWAP of $0.69, breakeven for the further-dated calls -- whose lifetime encompasses Dow Chemical's Wednesday, Jan. 29 turn in the earnings confessional -- is $46.69. Risk for both sets of call buyers is limited to the initial cash outlay.

Technically, The Dow Chemical Company (NYSE:DOW) has put up a respectable year-over-year gain of about 28%. What's more, a solid bounce off its 20-week moving average in early December helped propel the stock to a six-year high of $44.99 on Dec. 26. DOW has been consolidating some of these gains in recent weeks, and this afternoon's downgrade to "sell" from "neutral" at Gilford Securities has only exacerbated the equity's current technical troubles. At last check, the security was down 1.1% at $42.69.


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