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Unusual Options Activity

This afternoon we noticed unusual options activity in LyondellBasell Industries, an independent chemical company that coverts liquid and gaseous hydrocarbon feedstock into plastic resins and other chemicals. At 12:14 EST one trader bought 34,500 Nov. 57.5/60 call spreads for $0.60, and at 12:50 another 19,500 Nov. 57.5/60 call spreads were bought for $0.65. The stock was up over 5% on the day on expectations of increasing profit margins, as discussed in a Bloomberg Businessweek article this afternoon.

From Bloomberg:

Profit margins for ethylene, a colorless gas used to ripen fruit, open flowers and make products from plastic bags to paint removers, are surging to near record levels and may climb further, reviving fortunes of U.S. producers.

Two of the commodity’s largest makers, LyondellBasell Industries NV (LYB) and Westlake Chemical Co. (WLK), have posted their highest-ever profits and their shares have gained 66 percent and 91 percent respectively this year. Their margins will continue to improve as constrained production capacity pushes up prices, say Brian Maguire and Bob Koort, analysts at Goldman Sachs Group Inc. in Houston.

The driver is cheap shale gas, which is rejuvenating the country’s chemical industry after a decade of decline. Hydraulic fracturing of shale rock formations, known as fracking, cut U.S. gas prices to a 10-year low in April. It has also produced an oversupply of ethane, a natural gas component that is converted to ethylene with heat and pressure in a process known as cracking. Gas liquids, mostly ethane, supply about 85 percent of the feedstock for U.S. ethylene makers.

The full article can be found here: http://www.businessweek.com/news/2012-10-15/cheap-gas-from-fracking-fuels-profits-at-lyondellbasell-energy

Curiously, the stock opened up $0.50 and was up over 4% before the article was published, suggesting that the article was not the main driver behind the move. Westlake Chemical Co, another stock mentioned in the Bloomberg article, was up nearly 8% today. We couldn’t find any reason traders suddenly jumped into these stocks, but are wondering if it means if fracking, natural gas, and America’s competitive advantage in ethylene production will come up tonight in the debate…

Comments

Bahar Oezcevik said…
Hello Mr. Stutland,
I read your blog everyday and wanted to subscribe to you on Facebook but Stutland Equities on Facebook does not have a subscription option. It would be great if you or whomever is managing that profile could add an subscription tab so people can follow your Twitter updates on Facebook. Thanks and best regards,
October 18, 2012 at 3:05 AM
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