In January, we published a bullish article on LyondellBasell (LYB), highlighting the company’s turnaround potential and stating that the chemical maker appeared poised for a bearish-to-bullish reversal, which provided the framework for a call spread risk reversal trade. Our recommended options trade expires this Friday. Here’s how your setup should look. LYB still looks like a stock that is priced in for bad news long before the fundamentals improve, and that’s where better reversal trades often begin. This is still a chemical cycle, so let’s not act like the all clear is clear. End markets remain soft and overcapacity persists, making this not a long-term growth stock. But what has changed is that the stock price has started to perform better, management has taken action, and the uncertainty surrounding one of the biggest overhangs, the dividend, has been resolved. LYB closed at $75.20 on March 18th. It was a significant move from the trading conditions when the original bullish structure was set up. The company’s latest earnings commentary showed that management remains focused on its cash position. The company’s cash improvement plan exceeded its goal by $800 million in 2025, and the cumulative goal was raised to $1.3 billion by the end of 2026. Dividend Cut in Half Equally important, the company has already done what many investors feared it would have to do. It cut its quarterly dividend in half to 69 cents per share in February. This may not sound like good news on its own, but from a trading perspective, it removes a lot of uncertainty. In fact, we highlighted that the dividend yield suggests that many investors believe the dividend yield is not sustainable. Before that, the market was forced to handicap whether a dividend cut would occur – and it turned out to be correct. Now that the question is answered, it’s easier for investors to focus on whether the business is stable, rather than constantly worrying about when the other shoe will drop. That’s why we don’t simply let the original deal expire and move on. The original March call spread risk reversal of 47.5/52.5/60 was designed to be bullish when expectations washed away and stocks became cheap. The deal worked out. Given that it expires this Friday, it would be wiser to roll up and exit. Rather than holding the strike price, which is currently well below the stock price, I would consider moving into a situation similar to a June 65/75/90 call spread risk reversal, i.e. selling a June 65 put, buying a June 75 call, and selling a June 90 call against it. The Moving Strike Goes Higher Why this adjustment? Because the stock has earned the right to move the strike higher. Rollup acknowledges that LYB continues to affirm its previous judgment. Rolling out will give you more time to execute your paper. And by keeping it as a call spread risk reversal, you are still expressing the same core view. This means that while the downside may be more clearly defined now that expectations have been reset, further normalization in sentiment could still push stocks higher. Of course, this structure still comes with risks. Since you are shorting a put, you need to actively own a weak stock. And since this remains a cyclical name, LYB could definitely take a hit again if the macro backdrop worsens. But that’s also why I prefer a well-defined upside call spread, rather than simply reaching for a naked call after the stock price has already risen. There’s also still enough skepticism in the name to keep the setting interesting. Short interest has recently reached about 6.8% of the stock’s float, so there’s still potential fuel left if the stock continues to rise. While the initial bullish thesis from January has not yet expired, the original trade is about to expire. If the stock starts to work and the theory is intact, the answer is not necessarily to choose the trade-off. In some cases, simply rolling your position so that the stock better fits your current position may be the right move. Similar to the case of LYB. Disclosure: None. All opinions expressed by CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, its parent or affiliates, and may have been previously disseminated on television, radio, the Internet, or another medium. The above is subject to our Terms of Use 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 purchase any securities or other financial assets. The Content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor. Click here for full disclaimer.
