Bullishness in Eastman Chemical

Eastman Chemical Co. (EMN) shares continue to break lower following news that the company’s chairman sold a $6.5 million chunk of the company, but the call buying activity we saw Tuesday suggests a bullish formula.

The out-of-the-money January 60 calls traded more than 4,800 times yesterday versus open interest of 541 contracts, suggesting investors traded these options to open.

Shortly after 2 p.m. EST on Tuesday, an investor bought 4,500 of the January 60 calls for $2.70 per contract, which means the breakeven on this trade is $62.70. Investors who decide to hold on to these options until January 2010 expiration will make money if the options expire higher than that level. Keep in mind that if EMN shares pop up significantly, investors could choose to sell these options and take profits.

EMN shares closed down $1.23 to $58.09 Tuesday night, and the January 60 calls closed down 52 cents. Judging from the 43-delta, these calls moved basically in line with what the delta suggested.

Normal daily option volume in EMN is approximately 1,000 contracts, so yesterday’s trading far trumps ordinary activity. And it is interesting that the investor is calling for upside in the stock despite a recent downturn following news of the chairman’s stock sale. Bullish investors who bought the January 60 calls are looking for the stock to gain 8% to reach profitable territory during the next couple of months.