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Released on Tuesday, June 12th, 2012, 1:30 PM ET

Pittsburgh, PA (SpeculatingStocks) - Solutia, Inc. (NYSE:SOA) trended down today, finishing 0.98% below start-of-market at $27.38 per share (4:30 PM, June 11th, 2012). SOA is trading horizontally within a fairly stable range, and has been for the past 4 months pending an investigation upon the fiduciary duty of the directors in accepting a bid by Eastman Chemical for a buy-out. Since the announced acceptance, Solutia, Inc.'s stock has soared to its current range where it has remained ever since.

SOA trades between approximately $26.89 per share and $27.70 per share; moreover, due to the down-trend today, there is now a potentially immediate profit position in the options contracts. At a strike price of $28.00 per share, an put-option contract will cost a quoted $0.40 per share. Let's assume an average commission of roughly $10 for a contract purchase ( most likely a base price plus a price per contract, so we will go with one contract here); with 100-shares a contract, you can put 100-shares of Solutia at $28.00 per share, while the cost is currently $27.38 per share, with the cost per share deducted—commission allocated and removed as well--we can effectively put at $27.50 per share, netting a buy to cover gain of $0.12 per share, or $12 per contract. This profit per contract increases with the more contracts that are purchased, but never the less, still a nice float for a virtual paper transaction. (For contracts expiring on June 16th, 2012).

It's not evident where the price will head once the investigations are finalized, regardless of the out-comes. The price could skyrocket, or it could plummet, either way, you could trade the ups and downs by using a call and put strategy. Buy options calls on the upside—that is being bullish that the outcome of the investigations will positive and that the stock's price will subsequently rise, and then buying puts on the downside—being bearish about the outcome and projecting that the stock price will fall. Then when the news is revealed, you let either the call or the put expire, yes you will lose some commissions and cost of contracts; however, they are deductible as investment expenditures on your tax forms. Then whichever side is winning you execute when you think the stock has either bottomed out or topped. This way you will lose only the small cost of the expired contracts, while gaining the potentially large profit from the spread in the stocks position.

Lastly, if the stock doesn't move at all, you can simply call and put all contracts and reduce costs, or let them expire, effectively just eating the costs to net against other investment gains as a tax advantage. The nicety about options is that they are cheap and expendable—and they may prove to be the solution to your Solutia problems.

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