Buy to open the January 20, 2017 call on The Chemours Company (NYSE: CC) with a strike price of $17.5 at $1.45 or lower. Symbol (CC170120C17.5)

The calls should be purchased before the company reports earnings the morning of November 7 when I expect management to give bullish updates on demand for its Opteon product which is replacing standard coolants.

The Chemours Company was spun out of DuPont in July 2015. This performance chemical company is in a unique position as one of two companies in the world producing a coolant that is mandated to replace current coolants in autos and appliances.

This is a high-risk trade because The Chemours Company is liable for claims in water pollution cases being tried on November 14, 2016 and January 17, 2017. It also is burdened with $3.8 billion of debt passed down by DuPont.

1. Global regulations are being put in place to lower use of hydroflourocarbons, which emit huge amounts of carbon dioxide. These chemicals are measured by their global warming potential (GWP). Only Chemours and Honeywell have the ability to produce a substitute chemical that meets GWP standards.
2. On October 15 more than 170 countries reached an agreement as  part of the Montreal Protocol to curb the use of HFCs. Opteon, The Chemours Company’s new coolant, is already becoming standard in many new cars sold in the European Union and the United States by all the major automakers.
3. All cars sold in Europe after 2017 must meet the new GWP requirements.
4. The company predicts 40 million cars will be using Opteon by the end of 2017, growing to 140 million by the end of 2020. These low carbon dioxide producing coolants will be mandatory for vehicles in the U.S. starting in 2021.
5. On September 26 the EPA passed two new climate change regulations restricting the use of current coolants for appliance and forging the path for low GWP substitutes in these products. Some estimate the appliance market to be eight times the size of the auto market.

 

Risks:

1. Litigation pending over tainted water- DuPont indemnified itself and transferred all legal responsibility over to Chemours.
2. Some scientists question the safety of Opteon. SAE International, an engineering consortium that includes all of the major automakers and The Joint Research Center of the European Union has also said there was “no evidence of a serious risk” but some warn that it could be flammable in certain situations.