DOW – The Dow Chemical Company – Shares of the manufacturer of chemicals and plastic materials rallied 1.3% this morning to $27.06 despite reports that Goldman Sachs cut the U.S. chemicals sector to ‘neutral’ from ‘attractive’, and slashed their share price target on DOW to $35.00 from $40.00. Goldman still has a ‘conviction buy’ rating on Dow Chemical Co. One options investor wary of potential near-term erosion in the price of the underlying shares appears to have purchased a put spread in the August contract. The trader purchased roughly 3,000 puts at the August $26 strike for a premium of $1.22 apiece, and sold about the same number of puts at the lower August $24 strike for an average premium of $0.60 each. Net premium paid to establish the bearish spread amounts to $0.62 per contract. The investor starts to make money if the chemical maker’s shares slip beneath the effective breakeven price of $25.38 ahead of expiration. The put player is prepared to accrue maximum potential profits of $1.38 per contract should DOW’s shares decline 11.30% from the current price of $27.06 to trade below $24.00 by expiration day next month.
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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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