Most Active Options Update: Vale SA (ADR) (VALE)

One Vale SA (ADR) option trader set a long-term ceiling

Dec 8, 2014 at 2:44 PM
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The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest today is mining firm Vale SA (ADR) (NYSE:VALE), where one option player is betting on an extended stay in single-digit territory.

Most Active Options Table

It's been a terrible year for Vale SA (ADR), which is down nearly 47%. The stock is extending this decline today, off 3.2% at $8.11 -- and earlier tagged a nine-year low of $8.05 -- as speculation swirls over a potential settlement with Rio Tinto plc (ADR) (NYSE:RIO). What's more, the stock was hit with another round of bearish brokerage notes; this time from Stifel, which cut its target price to $16 from $19, and BMO, which reduced its target by $1 to $10. The firms also restated their respective "market perform" and "buy" ratings.

Against this backdrop, one option skeptic in today's session is rolling the dice on VALE to stay in single-digit territory over the next six months. Specifically, a large block of 5,424 June 10 calls was sold to open earlier for $0.36 apiece, resulting in an initial net credit of $195,264 (number of contracts * premium received * 100 shares per contract).

This also represents the maximum reward on the play, as long as VALE continues to churn south of $10 -- a level that roughly coincides with the equity's descending 50-day moving average -- through the close on Friday, June 19, when the series expires. Losses, meanwhile, could be quite substantial, should Vale SA (ADR) (NYSE:VALE) rally north of the strike, putting the call writer at risk of being assigned, and on the hook to deliver the shares at $10 apiece -- a discount to what they'd get on the Street.


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