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Yamana Gold Inc. (USA) (AUY) Option Buyers See New Lows Ahead

AUY skeptics are scooping up soon-to-be front-month put options

by 4/18/2013 2:32 PM
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The shares of Yamana Gold Inc. (USA) (NYSE:AUY) are defying broad-market headwinds this afternoon, rebounding in tandem with gold futures. However, some options traders are betting on a "dead cat bounce," as evidenced by today's affinity for short-term puts. So far today, AUY has seen roughly 5,400 puts cross the tape, more than doubling its average intraday volume.

Most of the action has transpired at the May 11 put, which has seen more than 1,300 contracts change hands at a volume-weighted average price (VWAP) of $0.59. The majority of the contracts crossed on the ask side, and volume has exceeded open interest at the soon-to-expire strike, hinting at newly bought bearish bets. With Yamana Gold Inc. currently up 3.5% at $11.49, these puts are just out of the money.

By purchasing the puts to open, the buyers expect AUY to breach $11 within the next few weeks. More specifically, the investors will begin to profit if the stock falls beneath the $10.41 level (strike price minus VWAP) by Friday, May 17, when the options expire. The equity hasn't traded south of $11 since early 2011, but fell as far as $11.02 in Wednesday's session (meanwhile, fellow commodity concern Barrick Gold Corporation also hit new lows). Should Yamana Gold remain atop this familiar level of support, the most the buyers are risking is the initial premium paid for the puts.

That's not to say AUY options are cheap, though. Amid gold's record-setting plunge -- and AUY's sympathy swoon -- the stock's Schaeffer's Volatility Index (SVI) has soared to a 52-week peak of 56%. In other words, AUY's short-term options are relatively expensive at the moment.

Plus, today's appetite for near-term puts marks a shift in sentiment for AUY. The security sports a Schaeffer's put/call open interest ratio (SOIR) of 0.32, indicating that calls more than triple puts among options expiring within three months. What's more, this ratio sits just 6 percentage points from a 12-month nadir, suggesting short-term options players have rarely been more call-heavy during the past year.


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