As Olin Rallies, Option Bears Bet On a Pullback

Despite a new high, Olin Corporation (OLN) traders are buying April puts

Mar 27, 2015 at 12:46 PM
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Olin Corporation (NYSE:OLN) is nearly 22% higher today to hit $33.17 -- and earlier touched a fresh record high of $34.34 -- after the firm announced it is buying most of Dow Chemical Co's (NYSE:DOW) chlorine business for approximately $5 billion. On the charts, today's jump brings the shares' year-to-date advance to an impressive 45.8%. However, some traders are skeptical of OLN's ability to sustain the momentum, as put activity is ramping up in the options pits.

Puts have been moving at 30 times the average intraday rate, though calls are still more popular on an absolute basis. The most active contract is the April 30 put, where it appears a decent portion of the activity is of the buy-to-open variety. Simply stated, these traders are gambling on the shares to breach $30 by the close on Friday, April 17, when the contract expires.

This spate of put buying runs opposite to the recent trend in the options pits -- over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 779 calls have been bought to open for every put. Additionally, OLN's Schaeffer's put/call open interest ratio (SOIR) of 0.06 is the lowest such reading taken over the past year, showing that short-term speculators have never been more call-biased in the last 12 months.

Elsewhere, the brokerage bunch is lukewarm at best on Olin Corporation (NYSE:OLN), as 71% of covering analysts rate the stock a "hold" or worse. Furthermore, the security's consensus 12-month price target of $26.14 sits well below current trading levels, showing a high possibility for a round of price-target hikes and/or upgrades to create tailwinds.

Daily Chart of OLN Since March 2014
 

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