DuPont Calls at Two-Year High as Traders See Rebound: Options
DuPont Co. options traders are more bullish than any time in two years, betting the stock will rebound from a five-month decline as investors favor companies with the highest dividends.
The ratio of outstanding puts to sell versus calls to buy has dropped to 0.8, the lowest since April 2009. Ownership of contracts to buy the shares through Oct. 21 for $44, or 6.8 percent above the stock price, surged almost 27-fold in the past month, the most among options on Wilmington, Delaware-based DuPont, data compiled by Bloomberg show. The shares have fallen 27 percent to $41.21 since peaking this year on April 29.
Concern policy makers may be running out of tools to keep the global slowdown from worsening has boosted demand for companies with the highest payouts. DuPont shares yield 3.98 percent, fifth-most in the S&P 500 Materials Index. It has a quarterly dividend of 41 cents a share, last raised in the final three months of 2007. Since the market peaked April 29, the S&P 500 Dividend Aristocrats Index has lost 9.7 percent, compared with the S&P 500’s loss of 15 percent including payouts.
“People like large-cap, dividend-paying stocks like DuPont particularly in this environment where there’s a lot of uncertainty,” Jake Dollarhide, who helps manage $70 million including DuPont shares at Longbow Asset Management in Tulsa, Oklahoma, said in a telephone interview yesterday. “The fears about Europe aren’t helping, but short of Greek default I’d look for things to get back to normal in next two or three months.”
DuPont had 199,697 outstanding calls and 160,246 puts as of Oct. 4, according to Bloomberg data. The ratio of calls to puts dropped 31 percent since Aug. 19, the biggest slide among all 30 Dow Jones Industrial Average companies. Call open interest on Sept. 15, before options expired last month, was 204,788, the most since August 1999.
Michael Hanretta, a DuPont spokesman, declined to comment.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, jumped a record 160 percent during the third quarter as concern grew the global economy was slowing and the sovereign debt crisis in Europe was worsening. The volatility gauge fell 4.1 percent to 36.27 today. In Europe, the VStoxx Index, which measures the cost of protecting against Euro Stoxx 50 Index losses, dropped 6.5 percent to 42.63.
All 10 DuPont contracts with the biggest increase in ownership in the past two weeks were calls. Open interest for October $44 calls rose to 9,303 contracts from 487 contracts, the largest gain. January $50 calls had the biggest open interest among all DuPont options.
“It stands out as an area of interest for traders,” Henry Schwartz, president of Trade Alert LLC, a New York-based provider of options-market data and analytics, said in a telephone interview yesterday. “Traders appear to consider ownership of these upside calls to be a good risk/reward.”
DuPont has bought four companies in the past year, Bloomberg data show, including Copenhagen-based Danisco A/S, the biggest producer of food additives. It’s expanding by opening new facilities and adding jobs. Ellen Kullman, the chief executive officer, said in an Oct. 4 interview with Carol Massar on Bloomberg Television’s “Street Smart” that “agriculture around the world is still doing really well,” and “automotive is growing.”
DuPont, the world’s largest maker of titanium dioxide, is investing in agriculture, electronics and safety and protection units to boost per-share earnings about 12 percent a year through 2015. The company paid 41 billion kroner ($7.3 billion) in June for Danisco. This year, DuPont is opening at least two plants in the U.S., Kullman said in the interview.
Cars, Food Prices
Industrywide light-vehicle sales ran at a seasonally adjusted annual rate of 13.1 million in September, the highest since April, according to Autodata Corp. Global food prices will probably stay at high levels this year because of a lack of stockpiles, the United Nations said last month.
DuPont could extend declines if the global economy continues to deteriorate. The International Monetary Fund cut its forecast for worldwide growth next year to 4 percent from 4.5 percent on Sept. 20, predicting “severe” repercussions if Europe fails to contain its debt crisis or U.S. policy makers deadlock over a fiscal plan.
The company raised its full-year earnings forecast to between $3.90 and $4.05 a share on July 28, up from $3.65 to $3.85, excluding its acquisition of Danisco. That compared with the average analyst estimate of $3.98. DuPont has exceeded estimates in each of the 10 quarters since Kullman became CEO.
Contrasts With Rivals
Greater bullishness about DuPont contrasts with the company’s rivals. The put-to-call ratio for St. Louis-based Monsanto Co. (MON), the world’s largest seed company, rose 22 percent to 0.79 between Aug. 19 and Oct. 4, Bloomberg data show. The ratio for Midland, Michigan-based Dow Chemical Co. (DOW), the largest U.S. chemical maker, gained 25 percent since Sept. 15 to 1.04.
“With record profits and zero cost for capital, with low interest rates and cheaper energy costs, there are a number of bullish factors lining up,” Alan Knuckman, chief market strategist at OneStopOption.com, a Chicago-based provider of options market analysis, said in a telephone interview yesterday. “The companies that are going to benefit from that are large conglomerates like this one as a default, because investment money has to move somewhere.”