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Olin Options Indicate a Rebound

Published: Friday, 6 Nov 2009 | 7:40 AM ET

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By: David Russell
writer, OptionMonster

Olin has been falling for six weeks, and now one investor is using options to bet on a rebound.

A block of 16,500 November 12.50 calls were purchased yesterday for $3.30, according to OptionMonster's proprietary tracking program. Volume was more than six times open interest in the strike.

Olin [OLN Loading... () ] rose 4.83 percent to $15.83 yesterday but is down 11 percent since hitting an eight-month high on Sept. 23. The chemical company has been falling faster than the rest of the market despite issuing bullish guidance on Oct. 26. The shares appear to have found support at $15 and may seem due for a bounce

By purchasing in-the-money calls, the investor paid just $0.03 for the leveraging power of options. The contracts will appreciate dollar-for-dollar with Olin, so if the stock rises 20 percent to $19, the calls would be worth $6.50—a 97 percent gain. (For more, read about delta in our education section.) The strategy also reduces the amount of money lost if the stock doesn't move before expiration.

The trade pushed overall options activity in Olin to eight times greater than average, with calls outnumbering puts by 67 to 1.

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Olin Competes With:

Alliant Techsystems [ATK Loading... () ]