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Are Kronos bears getting nervous?

David Russell (david.russell@optionmonster.com)

Traders are bracing for a potential short squeeze in chemical stock Kronos Worldwide.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 3,130 September 17.50 calls, most of which priced for $0.15 to $0.30. Volume was more than 10 times open interest at the strike, indicating that new positions were opened.

These long calls lock in the price where shares can be purchased in the thinly traded chemical stock, which has been making incrementally higher lows since last November. The contracts provide a relatively inexpensive way for investors to benefit from gains in the stock, potentially generating significant leverage in a rally while limiting losses in a drop. (See our Education section)

KRO rose 4.45 percent to $16.19 on Friday. The company produces titanium dioxide, which is used to make paints and other coatings white.

Kronos suffered from weak demand in recent years, running its factories below capacity as customers worked down inventories. But Friday's price action suggests that the tide may be turning, with its shares trading more than 4 times average amounts.

It would take more than 20 sessions of typical activity to clear all the short interest in the stock, and its persistently higher lows could now be forcing some bears to cover their positions--especially as other chemical stocks push higher.

Overall option volume was even more unusual, registering at 50 times normal amounts. Calls accounted for a bullish 96 percent of the total.

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