Market News

August 7, 2012  Tue 11:46 AM CT

As Dow Chemical rallies off its lows, a large trade is betting on a floor beneath the shares.

DOW is up 0.87 percent to trade at $30.25, a week after hitting its 2012 low of $28.65. Shares have been trending lower from their 52-week high of $36.08 set in late April.

A trader sold 5,000 March 28 puts for the bid price of $2.08, according to optionMONSTER's systems. Open interest at the beginning of the day was just 358 contracts, so this is a new position.

The put seller apparently believes that thes stock will hold above $28 through expiration. The trader is looking to collect the so-called volatility premium but does face the possibility of having to buy the stock if its trades below that level. (See our Education section)
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Using puts to BUY stock

Puts are an options contract that gives buyers the right to sell their stock for a set price on or before a future date. However, puts can also be an effective way to BUY stock.

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