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Dow Chemical, Coventry Health Care Puts In Play; Aeropostale Calls On Trend

 

Today’s tickers: DOW, CVH & ARO

DOW - Dow Chemical Co. – Bearish trading in DOW options this morning suggests some traders are positioning for the price of the underlying to decline further this summer. Shares in Dow Chemical fell 1.6% to $31.73 on Tuesday following a downgrade to ‘Neutral’ from ‘Overweight’ at JPMorgan. Upwards of 4,500 puts changed hands at the Aug. $31 strike in the first half of the trading session against open interest of 1,413 contracts. It looks like most of the puts were purchased at a premium of $1.33 apiece, including a large block of 1,568 contracts that traded within minutes of the opening bell this morning. Put buyers may be taking outright bearish positions on the name or hedging long positions in the underlying shares ahead of the company’s second-quarter earnings report on July 26th. Profits – or downside protection – kick in on the long put positions should shares in the manufacturer of plastic materials and chemicals slide 6.5% to breach the effective breakeven price of $29.67 by August expiration.

CVH - Coventry Health Care, Inc. – The managed care company popped up on our scanners this morning after a large bearish spread was initiated in the front month options today ahead of a decision from the Supreme Court on the 2010 health care law. Shares in Coventry Health Care are off their lows of the session but remain in negative territory, down 0.60% at $33.33 as of 12:15 p.m. in New York. A large 5,000-lot July $28/$32 put spread appears to have been purchased for a premium of $0.95 per contract. The position, rather sizable next to overall open interest on the stock of 32,696 contracts, could be a hedge to protect a long position in the stock or an outright bearish stance on the near term performance of the shares. The spread is profitable – or yields downside protection – in the event that Coventry’s shares decline another 6.8% to trade below the breakeven point on the downside at $31.05. Maximum possible gains of $3.05 per contract are available on the position should shares drop 16.0% to $28.00 by expiration in three weeks time.

ARO - Aeropostale, Inc. – A burst of call buying on teen retailer, Aeropostale, Inc., this morning may mean at least one trader is looking for shares in the name to rise in the next couple of months. The stock is on the up-and-up today, trading 1.75% higher on the day at $16.19 as of 12:40 p.m. in New York. The Aug. $16 strike in-the-money call is the most active contract on ARO today, trading more than 1,600 times against open interest of just 142 contracts. It looks like most of the calls were purchased for a premium of $1.20 each, thus positioning one or more strategists to profit should the retailer’s shares rally another 6.2% to top the breakeven price of $17.20 by expiration. Aeropostale reports second-quarter earnings after the close of trading on August 16th.

 

Caitlin Duffy

Equity Options Analyst


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