EI du Pont (DD) trade calls for upside


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Shares of E.I. du Pont de Nemours & Co. (NYSE: DD ) dropped into the red after trading up out of the gate on Tuesday without any notable news from the company. Heavy call volume has accumulated in the September options expiration month thanks to an investor who appears to have expressed bullishness on the chemicals name.

At 10:29 a.m. EDT, roughly 3,800 September 45-strike calls changed hands versus current open interest of just 76 contracts. The options traded in several large blocks for 30 cents per contract, which was closer to or at the ask when the largest lots crossed the tape. It looks like some investors expect DD shares to rally another 8% during the next month and are willing to commit a hefty amount of capital to place that bet.

The investors who bought these calls to open will make money if DD shares are trading higher than the breakeven level of $45.30. Maximum profit on this bullish trade is theoretically unlimited if the stock continues to the upside. In this way, this long call trade is similar to a long stock position. Risk on long call trades, however, are limited to the premium paid. In this trade, the investor risks 30 cents per contract if the stock is trading below the strike price at expiration.

Return on risk for this long call trade is theoretically unlimited to the upside. If the price of these near-dated calls apprecite with or without a significant move in the stock, the investor could choose to sell back the options and take profits instead of holding them until expiration.

DD shares dropped 80 cents, or nearly 2%, to $41.68 during morning trading. The stock reached a new 52-week high yesterday of $42.54, and has since pulled back roughly 2%. The stock soared on Aug. 5 because Cramer mentioned the stock positively.

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

This article appears in: Investing , Options

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Karla Yeh

Karla Yeh

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