Dow Calls Hit Five-Month High Amid Activist Speculation

Bullish option trading on Dow Chemical Co. rose to the highest level in five months amid speculation the largest U.S. chemical maker may be the target of an activist investor.

More than 89,000 calls to buy the stock changed hands yesterday, the most since February, according to data compiled by Bloomberg. That was 16 times the four-week average and 6.9 times the number of puts to sell. September $39 calls accounted for 24 percent of all options volume. The shares climbed 3.1 percent to $38.04 for the biggest gain since April.

“After the DuPont activist, Dow Chemical is seen as another likely target,” Joe Kunkle, founder of, a Boston-based provider of options market data and analytics, said in an e-mail. It is “an underperforming stock but valued attractively with room to trim the fat via asset sales to unlock shareholder value,” he said.

DuPont Co. said last month it’s considering a spinoff or sale of its performance chemicals unit to focus on less-cyclical products and boost shareholder returns. Activist investor Nelson Peltz amassed a “very big” stake in the company, Andrew Ross Sorkin of the New York Times said at the CNBC Institutional Investor Delivering Alpha Conference on July 17. Peltz, who was also at the conference, declined to comment at the time.

Dow earned about 7 cents of operating profit for every dollar of sales in the past 12 months, the lowest margin among its peers, data compiled by Bloomberg show. Rebecca Bentley, a spokeswoman for the Midland, Michigan-based company, declined to comment on the trading.

Volume Jumps

About 18.7 million Dow shares changed hands yesterday, the most since the end of April and more than triple the three-month average volume. The September $42 calls rose to 19 cents from 1 cent for the biggest gain among all Dow contacts. Next month’s options expire Sept. 20.

Weekly bullish options expiring at the end of next week were also among the most active. The second and third most-traded contracts were $38 and $39 expiring Aug. 17.

“Looks like buyers are anticipating some type of catalyst to lift the stock,” Frederic Ruffy, a Chicago-based senior options strategist at, wrote in an e-mail.

The stock trades for about 20 times its trailing 12-month earnings per share, according to data compiled by Bloomberg. That’s also the median price-earnings ratio for chemical companies with market values exceeding $20 billion, the data show.

Asset Sales

Dow shares have rallied 18 percent this year as cost cuts and revenue gains in China and other emerging markets helped boost earnings. The company may sell three businesses with $6 billion in combined revenue if it fails to improve profit margins, Chairman and Chief Executive Officer Andrew Liveris said on an on July 25 conference call.

Dow is investing $4 billion to expand production in the U.S., where an abundance of natural gas from drilling in shale formations has made U.S. plastics production competitive with the Middle East. The company, founded in 1897 as a bleach maker, is the world’s biggest producer of chlorine, epoxy resins and polyethylene plastic. It’s the world’s second-biggest chemical maker after Germany’s BASF SE.