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Option Volume Briefs: Expected Upside in Eastman Chemical

EMN long-term calls see buying activity

by 10/9/2012 8:09 AM
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Speculators targeted Eastman Chemical Company (NYSE:EMN - 57.00) yesterday, and although the stock dropped 3.6% on the day -- due to a brokerage downgrade -- bullish trading activity took center stage. More than 6,400 call contracts changed hands, tripling average daily call volume, while just 953 puts traded (which was still enough to double the expected put volume).

The March 60-strike calls were the most popular destination, with 4,699 contracts trading on scant open interest of just 62 contracts. The average entry price per contract was $2.93, making the breakeven point on this out-of-the-money option $62.93 at March options expiration, or more than 10% above current levels.

Bullish enthusiasm has been growing in the options pits -- the 10-day call/put volume ratio of buy-to-open activity at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 14.82, up from the 50-day volume ratio of 2.52. In other words, almost 15 calls have been bought to open for every put during the last 10 trading days.

Traders likely saw yesterday's hiccup -- which brought the stock in line with recent support from its 40-day moving average -- as a chance to jump on board amid a pullback. The shares have been in rally mode since early 2009, gaining 540% from their March 2009 nadir and stepping to a new record high of $59.56 as recently as Sept. 14.

Daily chart of Eastman Chemical (EMN) since May 2012

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