Breakout year for Dow Chemical?

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Dow Chemical has been running hard, and traders are betting that the rally will continue all year.

optionMONSTER's Heat Seeker tracking system detected the purchase of more than 40,000 January 50 calls for $2.78. Two giant blocks of 20,000 contracts each accounted for almost all the volume, dwarfing previous open interest of 17,037.

These long calls lock in the price where the chemical producer's shares can be bought, letting investors cheaply position for a rally. They now are risking about 5 percent of the stock's underlying value, which limited the amount of money they can lose in the event of a selloff. At the same time, they stand to benefit from potentially huge leverage if the shares keep climbing through early 2015. (See our Education section)

DOW rose 1.29 percent to close at $47.83 yesterday, at one point touching an 8-1/2 year high above $48. The stock has been climbing amid pressure from activist investor Dan Loeb and following a strong earnings report last month. It was also recommended as a long on optionMONSTER's exclusive Market Action webinar in December.

Total option volume in the name was 6 times greater than average in the session, with overall calls outnumbering puts by a bullish 13-to-1 ratio.

(A version of this post appeared on InsideOptions Pro yesterday.)



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: DOW

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