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Why one trader is buying puts in Ashland

David Russell (david.russell@optionmonster.com)

Ashland exploded higher last week, but now the paper is turning cautious.

optionMONSTER's Depth Charge monitoring program detected the purchase of 4,000 April 85 puts against open interest of just 205 contracts. Premiums rose from $0.90 to $1 as the trades hit, which shows the buying pressure.

Puts lock in the price where shares can be sold in the chemical company, so they will gain in value if ASH drops through expiration this Friday. Investors often use them to hedge long positions or to speculate on a drop. (See our Education section)

ASH is down 1.29 percent to $85.54 in morning trading but is up 15 percent so far this month. Most of that move occurred on Friday after hedge fund Jana Partners disclosed it had amassed a 7.4 percent stake in the company and stated that its shares were undervalued.

The stock has been sitting around the same level where it peaked in January. The company reports earnings on April 24, after today's contracts expire, so they're apparently worried about a simple short-term pullback from this resistance level.

Total option volume is more than triple the daily average so far today, with puts outnumbering calls by 83 to 1.

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