Chemical companies are yielding mixed results, according to my Power Stocks system, which identifies the most volatile and liquid stocks for option trading or short-term stock trading.
Click to EnlargeTyco International (NYSE:TYC) looks strong, but has topped out around the $27 area. If it breaks through for a continued rally, the stock would be a confirmed buy—which is exactly what happened with W.R. Grace & Co. (NYSE:GRA). Both Air Products & Chemicals (NYSE:APD), an industrial gas giant, and Dow Chemical (NYSE:DOW), a diversified chemical manufacturer, slipped last week, but look to be improving in this past Friday’s and Monday’s trading. There may still be resistance holding these two back.
With such tentative attempts upward, the surer bet is to the downside. I see opportunity for puts with Dupont (NYSE:DD), which is among the weakest of the chemical stocks in downward trends.
Recommendation: Buy Dupont Jan 40 put options at 60 cents or lower, when the stock price is around $42.40. After entry, take profits if the stock price hits $40.20 or the option price reaches $1.4. Exit if the stock price closes above $43.50 or the option price falls to 40 cents.
Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.