El DuPont de Nemours & Co. (NYSE: DD )
are outperforming the broad-market strength so far during
Wednesday's session without any notables news on the company.
Near-dated puts, however, were active despite the lack of news to
catalyze the moderately bearish options action. Heavy volume
accumulated in the September 36-strike and 41-strike puts during
today's session as part of a bear put spread.
DD shares climbed 76 cents, or nearly 2%, to $42.19 as of 2:15
p.m. EDT. The stock reached a 52-week high of $41.75 during the
trading session on Aug. 2 following the chemicals company's
better-than-expected earnings announcement. On July 27, DD
announced earnings of $1.17 per share and beat estimates by 24
cents. In addition, the company raised its guidance for its fiscal
2010 year. While DD shares are hovering around its 52-week high, at
least one investor expressed moderate bearishness and chose to open
a bear put spread to call for at least 14% of downside during the
next month and a half.
Around 12:22 p.m. EDT, a block of 5,000 September 36-41 put
spreads changed hands for a premium of 99 cents per spread. The
September 36 puts changed hands for 26 cents per contract while the
September 41 puts traded for $1.25 per contract. The lower-strike
puts traded at the bid price while the higher-strike puts crossed
closer to the ask price at the time of the trade. This options
action suggests the investor paid a total premium of $495,000 for
the lot on a bet that DD shares will be trading lower than $36 at
September options expiration.
Maximum gain on this bear put spread is $4.01 per spread, and
occurs if the stock is trading below the short put strike at
expiration. If the stock is trading higher than the long put strike
at expiration, the investor loses the entire premium paid. Return
on risk for this spread equals 405% at expiration.
Spread strategies such as this limit risk and reward, but also
call for an increase in volatility throughout the near term.
Implied volatility of the 36-strike puts is 35% and the 41-strike
puts are trading with an implied volatility of 26% compared to the
stock's 30-day historical volatility of roughly 30%.