Original bullish options trade on LyondellBasell worked. Now it deserves another
In January, we published a bullish article on LyondellBasell (LYB) that highlighted its turnaround potential and said that the chemical maker appeared poised for a bearish-to-bullish reversal, which framed a call spread risk reversal trade. The options trade we recommended expires this Friday. Here’s how one should look at the setup now. LYB still looks like a name where the bad news got priced in well before the fundamentals had any chance to improve, and that is often where some of the better reversal trades begin. This is still a cyclical chemicals story, so let’s not pretend the all-clear has sounded. End markets remain soft, overcapacity persists, and this is not a secular growth stock. But what has changed is that the stock has started to act better, management has taken action, and one of the biggest overhangs — uncertainty around the dividend — has now been addressed. LYB closed at $75.20 on March 18. A big move from where it was trading when the original bullish structure was put on. The company’s most recent earnings commentary also showed that management continues to focus on its cash position. Its cash improvement plan delivered $800 million in 2025, above target, with the cumulative target now raised to $1.3 billion by the end of 2026. Dividend halved Just as important, the company has already done what many investors feared it might have to do: It halved the quarterly dividend to 69 cents per share in February. That may not sound like good news in a vacuum, but from a trading perspective, it removes a major uncertainty. In fact, we highlighted that the dividend yield suggested many investors did not believe it was sustainable. Before that, the market was forced to handicap whether a dividend cut was coming — correctly, it turns out. Now that the question has been answered, it’s easier for investors to focus on whether the business is stabilizing rather than constantly worrying about when the other shoe drops. That is why we would not simply let the original trade expire and move on. The original March 47.5/52.5/60 call spread risk reversal was designed to lean bullish when expectations were washed out, and the stock was cheap. That trade has worked. Given the expiration this Friday, the better move is to roll up and out. Rather than staying with strikes that are now well behind the stock, we would look at rolling into something like a June 65/75/90 call spread risk reversal — selling the June 65 put, buying the June 75 call, and selling the June 90 call against it. Move strikes higher Why this adjustment? Because the stock has earned the right to move the strikes higher. Rolling up recognizes that LYB continues to confirm our earlier judgment. By rolling out, we are giving the thesis more time to play out. And by keeping it as a call spread risk reversal, you are still expressing the same core view: that the downside may be better defined now that expectations have reset, while further normalization in sentiment could still push the stock higher. This structure still carries risk, of course. You are short the put, so you must be willing to own the stock on weakness. And this remains a cyclical name, so if the macro backdrop deteriorates, LYB can absolutely get hit again. But that is also why we prefer the defined-upside call spread rather than simply reaching for naked calls after the stock has already rallied. There is also still enough skepticism in the name to keep the setup interesting. Short interest recently stood at roughly 6.8% of float, so there is still some potential fuel if the stock continues to grind higher. The original bullish thesis from January has not expired, but the original trade is about to. When a stock starts to work, and the thesis remains intact, the answer is not always to take the trade off. Sometimes the right move is simply to roll the position so it better fits where the stock is now. That looks like the case in LYB. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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