Are DuPont (DD) Option Bears Shaking in Their Boots?

DuPont (DD) put options were popular ahead of today's M&A chatter

by Andrea Kramer

Published on Dec 9, 2015 at 11:01 AM
Updated on Dec 9, 2015 at 11:06 AM

The shares of E I Du Pont De Nemours And Co (NYSE:DD) -- better known as DuPont -- are 12.8% higher at $75.13, helping the blue chips shake off lingering oil woes. Bolstering the chemical behemoth -- which is also on pace for its highest single-day stock volume in more than a year -- are reports of merger talks with Dow Chemical Co (NYSE:DOW). However, today's M&A surge could have quite a few option bears shaking in their boots.

On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), DD's 50-day put/call volume ratio sits at 1.24 -- in the 100th percentile of its annual range. In other words, option buyers have initiated bearish bets over bullish at an annual-high clip during the past 10 weeks.

The equity's January 2016 65-strike put saw the most action during the past two weeks, with open interest rising by nearly 3,500 contracts. "Vanilla" buyers of the puts were expecting DD to backpedal beneath $65 by the close on Friday, Jan. 15, when the soon-to-be front-month options expire.

Also interesting, the stock's Schaeffer's Volatility Scorecard (SVS) was sitting at 100 even before today's rally, indicating that DD has tended to make outsized moves over the past year, relative to what the options market has priced in. This is good news for the aforementioned January 2016 65-strike put buyers, as the most they stand to lose is the initial premium paid, should the puts remain out of the money. Delta on the put has dropped to negative 0.10 from negative 0.36 at last night's close, suggesting the options have about a 10% chance of expiring in the money next month.

Today, it seems the sentiment tide has shifted toward DD, with calls crossing the tape at seven times the average intraday rate, and outnumbering puts. The now at-the-money 75-strike calls are popular, with what looks like possible buy-to-open activity in the January 2016 and April series.

On the charts, DuPont is now in the black for 2015, up 6.9%. What's more, the stock is within striking distance of an annual high of $76.61, tagged in mid-March.

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