EOT Trade Alert – February 13, 2015
Trade Alert:
Buy DOW March 20th 2015 $48.00 puts at $1.00 or better
Company Background:
The Dow Chemical Company (DOW) is a major integrated chemical company.
Short-Term Catalyst:
Dow Chemical stock has been moving higher along with the overall market recently.
This massive $58 billion market cap company has a strong business that generated $6.5 billion in cash flows in 2014 and has $5.7 billion of cash on the books.
But the overall growth of the company leaves something to be desired… last year sales grew a sluggish 2%. At a current price of $49.24, the stock seems fairly valued.
Here’s the problem…
The global economy just isn’t growing fast enough to generate the kind of growth that will drive DOW higher. In other words, there’s just not a whole lot for investors to get excited about.
That means technical analysis should play an important role in determining the price action of the stock over the next few months. And right now the technical setup for DOW is bearish.
DOW has been in a downtrend after reaching a high near $55.00 in September. And it has fallen below the 200-day moving average – a key technical level.
What’s more, analysis of the volume shows the recent run up in the stock price is running out of steam.
This is a clear indication that DOW is in danger of tumbling back toward the recent lows around $43.00 per share. Let’s buy put options on DOW as it runs into resistance of the 200-day moving average.
If this plays out as expected, this trade should turn a nice profit over the next month or so.
Trade Details:
| Underlying Stock Symbol: | DOW |
| Current Bid-Ask Price: | $0.87 – $0.92 |
| Option “Buy Up To” Price: | $1.00 |
| Break-Even On Stock At Expiration: | $47.00 |
| Maximum Risk Per Contract: | $100 |
Exit Strategy:
DOW is trading at $49.24 per share. Resistance levels will be at $51.00 and again at $52.00. Remember, we want this stock to move lower. Support levels will be at $46.00 and $43.00. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.
Chart:
Category: EOT Trade Alert
