Dow Chemical (NYSE: DOW - option chain) shares are headed higher today after the company closed its acquisition of Rohm & Haas. This allows DOW to announce today it plans to sell Morton Salt to German company K+S Aktiengesellschaft for nearly $1.7 billion. This will help DOW stabilize its finances, which were left in a lurch when Kuwaiti financing on the Rohm & Haas deal fell through. Left out in the cold in this deal is Compass Minerals International (NYSE: CMP), a salt company that had been expected to get a bid from K+S. If you think that DOW won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on that stock.DOW opened this morning at $9.46. So far today the stock has hit a low of $9.25 and a high of $9.75. As of 12:05, DOW is trading at $9.69, up 88 cents (10.0%). The chart for DOW looks neutral and S&P gives DOW a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $5 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just six months as long as DOW is above $5 at September expiration. Dow would have to fall by more than 49% before we would start to lose money.
DOW hasn't been below $5 at all in the past year and has shown support around $7.50 recently.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent controls bullish hedged positions in DOW. He does not own nor control positions in CMP.
DOW hasn't been below $5 at all in the past year and has shown support around $7.50 recently.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent controls bullish hedged positions in DOW. He does not own nor control positions in CMP.
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