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Yamana Gold Garners Attention from Option Bulls

Traders are buying front-month calls on AUY

by 7/3/2012 9:21 AM
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After a recent test of support at their 100-week moving average, the shares of Yamana Gold Inc. (NYSE:AUY - 15.47) are now attempting to reclaim a perch atop their 32-week trendline, which has helped to usher the stock higher since September 2010. The options crowd appears to have faith in the equity, as evidenced by yesterday's surge in buy-to-open call activity.

During the course of the session, the commodity concern saw about 10,000 calls change hands, compared to its average daily volume of fewer than 6,100 calls. Most active were the July 14 and 15 calls, which saw volume of about 2,100 and 5,100 contracts traded, respectively. The majority of the front-month calls crossed at the ask price, and call open interest soared at both strikes overnight, confirming our suspicions of buy-to-open action. By purchasing the calls to open, the traders are expecting AUY to extend its recent climb north of the strikes over the next few weeks.

However, yesterday's affinity for short-term calls appears to be par for the course for AUY. The stock's Schaeffer's put/call open interest ratio (SOIR) has declined significantly over the past few weeks, and now stands at 0.35, indicating that calls nearly triple puts among options expiring within three months. Plus, this ratio registers in the 19th percentile of its annual range, suggesting near-term options players are more call-skewed than usual at the moment.

Nevertheless, even with yesterday's influx of new positions at the 14 and 15 strikes, the July 16 strike remains home to peak call open interest, with a whopping 21,161 contracts in residence. Meanwhile, the deeper out-of-the-money July 17 strike is runner-up, with more than 10,500 calls outstanding. In the short term, this abundance of overhead calls could translate into an options-related speed bump for AUY.

Weekly Chart of AUY since August 2010 With 32-Week and 100-Week Moving Averages


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