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Dow Chemical Set for Summer Rally: Options Trader

Tuesday, 7 Jun 2011 | 10:44 AM ET

Dow Chemical has faltered after starting the year with a bang, but one bull is looking for more upside by late summer.

OptionMonster's tracking systems lit up yesterday with what appears to be a big leveraged institutional trade. About 5,100 September 38 calls were bought for $1.04, and twice as many September 42s were sold for $0.26. That translates into a cost of about $0.78.

The trade, known as a ratio spread, occurred after Dow pushed down toward its 200-day moving average. The position exposes the investor to a short position in the upside calls, which can cause some pain if the stock rebounds too much, but pays more than 400 percent on a move to $42.

The spread skewed Dow's overall activity toward the calls, which outnumbered puts by 5 to 1. More than 31,000 contracts traded in total versus its daily average volume of 13,745.

Chemicals have been one of the stronger areas this year, and that remained true even in a negative session. Dow's stock fell 0.4 percent to $35.06 yesterday (Monday), less than half the percentage drop of the broader market. (See ticker for today's quotes.)

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Disclosures:

Pete Najarian has no positions in DOW.

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Other Chemical Companies:

DuPont

Huntsman

Celanese

Methanex

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Options Trading School:

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Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC's "Fast Money" and co-founder of OptionMonster.com.

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Disclaimer

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