Back on 7-June-2017, we recommended investors take a bullish position in LyondellBasell Industries (LYB). We were looking for the share to chop higher as a consolidating down trend line was broken to the upside, and that line was retested at the time of the trade. This was ideal technical set up for a bullish trade. Valuation looked good at the time as the shares were trading at a PE of about 9 and EV/EBITDA was a depressed 6.5 as well. Priced can always do what it wants, as we say, and there was the possibility that the shares could trade down to the $65 level where the share priced bottomed 3 times in the past 3 years.
Given valuation, the technical set-up and the choppy nature of the share price the past few years, we suggested investors sell a September 75/80 put spread. We sold the $80 strike put as we were confident the share price would trade above that level at expiration and selling an in the money put generated extra premium. Since we initiated the trade, the share price has risen from $79.14 to $91.72. This is a somewhat larger move than we anticipated, but we will take it. As the table below shows, that we can close it out of about 5 cents, for a profit of $209 per put spread before commissions.
If this were a normal time, we would sit on the position of another week and let it expire worthless. But since LYB has facilities in Texas along the Gulf Coast, we do not want to take the risk of any surprises resulting from Hurricane Harvey. To be clear, we do not know of any damage to any of their facilities. But since the most we can gain is $5 for waiting it out, versus the potential for losing $495 from here, we think it is prudent to close the trade, pay a commission and the bid/offer spread and lock in our gain.We still like the stock and the company. We
We still like the stock and the company. We may revisit the situation after the company gets their facilities up and running once again.
