Time to Buy Puts on This Struggling Dow Stock

Short-term options are pricing in relatively low volatility expectations

Chemical giant DowDuPont Inc (NYSE:DWDP) has been stuck in a channel of lower highs and lows since its late-January peak, down more than 13%. In mid-March, the shares breached the $67-$68 neighborhood -- where they were trading when Dow and DuPont merged back in early September -- and several unsuccessful attempts to reclaim this level suggest a firm layer of resistance is in place.

What's more, this area corresponds with a heavy accumulation of call open interest at the May and June 67.50 strikes, where more than 33,000 total contracts reside. This could reinforce the region as a technical ceiling, as the hedges related to these bets begin to unwind over the next several weeks.

Plus, there's little in the way of sideline cash to help fuel any future rally attempts. The 18.25 million DWDP shares dedicated to short interest account for less than 1% of the stock's available float, and would take just two days to cover, at the average pace of trading.

It appears to be a prime time to bet on DWDP's next leg lower with options, too. The stock's Schaeffer's Volatility Index (SVI) of 21% ranks in the 25th annual percentile, meaning low volatility expectations are being priced into near-term contracts.