Trade Alert: Better Living Through Chemistry (HUN)
Over the past few years, chemical maker Huntsman Corp. (NYSE: HUN) has changed its ways.
Once comfortable shouldering a high debt burden, Huntsman has been aggressively cutting debt, while raising significant capital by spinning off its pigments division, Venator.
Last year, Huntsman nearly halved the debt on its balance sheet. And now coveted investment-grade ratings from the two major rating agencies are within sight–both Moody’s and Standard & Poor’s have positive outlooks on their ratings.
Meanwhile, Huntsman has returned to generating robust free cash flow, thanks to rising margins due to growth in its polyurethanes segment. This will allow it to invest further in the growth of its business, pursue bolt-on acquisitions, and return additional value to shareholders.
This contract expires about a week before the company is scheduled to next report earnings. It’s never a bad thing if the timing of a short-term trade can eliminate the possibility of any earnings-related surprises.
This trade will generate immediate income of at least $28 per contract now, with the possibility of buying Huntsman at an 8% discount to where it currently trades if the stock gets put to you. Investors should set aside $3,000 per contract sold to buy the stock in case the option expires in the money.
Regardless of how many contracts you sell, it’s absolutely critical that you follow the instructions below, particularly when it comes to setting the limit order.
How to Make the Trade:
- Trade: Sell to open the July 20, 2018, $30 Put on HUN.
- Allocation: Sell one put for every 100 shares you would be pleased to buy at $30 per share.
- Current Stock Price: $32.76
- Limit Order Price: a credit of $0.28 or more.
- Tell your broker: “I want to sell a put on Huntsman Corp. (NYSE: HUN) stock. Specifically, I want to ‘sell to open’ one July $30 Put for a credit of $0.28 per share or more.”
- Further Instructions Regarding the Trade:
- If the option price changes, you can adjust our recommended limit based on the midpoint of the bid/ask spread, which you should be able to see when entering the trade. Just make sure the potential credit is at least $0.28 per share or more.
- Place your limit order on a “good ‘til canceled” (GTC) basis and be patient.
The Win-Win Situation:
For every put contract you sell, you will collect $28 that’s yours to keep no matter what happens in the future.
If the put expires worthless, meaning the stock price is above $30 per share at expiration, then we’ll do another trade to create another instant payment.
If the stock is trading at or below the strike price upon the contract’s expiration, then you’ll be buying Huntsman at an 8% discount to the current market price, while locking in a yield of 2.2%—plus the premium you pocketed when you sold the put.
Then we’ll collect the dividend while creating more instant payments by selling covered calls against the stock.