Time to Buy Puts on This Struggling Dow Stock

Heavy near-term call open interest could create headwinds for DWDP

May 15, 2018 at 10:55 AM
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Chemical giant DowDuPont Inc (NYSE:DWDP) has been stuck in a channel of lower highs and lows since its late-January peak, down more than 13%. In mid-March, the shares breached the $67-$68 neighborhood -- where they were trading when Dow and DuPont merged back in early September -- and several unsuccessful attempts to reclaim this level suggest a firm layer of resistance is in place.

WKALT Chart DWDP May 11

 

What's more, this area corresponds with a heavy accumulation of call open interest at the May and June 67.50 strikes, where more than 33,000 total contracts reside. This could reinforce the region as a technical ceiling, as the hedges related to these bets begin to unwind over the next several weeks.

Plus, there's little in the way of sideline cash to help fuel any future rally attempts. The 18.25 million DWDP shares dedicated to short interest account for less than 1% of the stock's available float, and would take just two days to cover, at the average pace of trading.

It appears to be a prime time to bet on DWDP's next leg lower with options, too. The stock's Schaeffer's Volatility Index (SVI) of 21% ranks in the 25th annual percentile, meaning low volatility expectations are being priced into near-term contracts.

Subscribers to Schaeffer's Weekend Trader Series options recommendation service received this DWDP commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.
 

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