DOW – Dow Chemical Co. – September contract put activity on the global producer of commodity chemicals this morning appears to be the work of a bearish options player increasing the size of a plain-vanilla debit put spread. Dow Chemical’s shares slipped 0.90% down to $26.67 as of 10:55 am (ET). It looks like the investor originally paid a net $1.75 per contract to get long the 1,320-lot September $27/$22 strike put spread back on May 27, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $27.63. Today, it seems the pessimist is doubling the size of the trade, buying 1,320 puts at the September $27 strike for a premium of $3.19 each, and selling the same number of puts at the lower September $22 strike for a premium of $1.26 apiece. The net cost of today’s transaction amounts to $1.93 per contract. The original transaction yields a breakeven share price of $25.25 and maximum potential profits of $3.25 per contract, while the new trade touts a breakeven price of 25.07 and maximum potential profits of $3.07 per contract. In both cases, shares must plummet 17.5% from the current price of $26.67 in order for the put-spreader to garner maximum profits.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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