Merger buzz lifts DuPont, chemical stocks

EI DuPont de Nemours & Co. (NYSE:DD) opened at $50.60. So far today the stock has hit a low of $50.51 and a high of $51.40. As of 11:15 this morning, DD is trading at $51.00, up $0.99 (2.0%).

After hitting a one year high of $53.67 in February, the stock dropped with the rest of the market in the recent sell off, but found support just below $50. Rumors abound this morning that companies in this industry are attractive takeover targets, with Dow Chemical (NYSE:DOW), Lyondell Chemical (NYSE:LYO), and DuPont the beneficiaries of the buzz. The technical indicators for DD have been bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $45 range. DD hasn't been below $45 since October and has shown support around $49. This trade could be risky if oil futures get back to post-Katrina levels, but in hindsight, it looks like the highest crude prices were caused by speculators, and oil has seen some resistance just over $60 per barrel recently.

Brent Archer is an options analyst and writer at Investors Observer (Free Subscription).

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about.