Vale SA (VALE) Traders Think the Worst is Yet to Come

Vale SA (ADR) (VALE) hasn't traded south of $6 since December 2004

by Karee Venema

Published on Mar 6, 2015 at 2:00 PM
Updated on Apr 20, 2015 at 5:32 PM

This morning's strong payrolls report is drilling the metals sector, and mining magnate Vale SA (ADR) (NYSE:VALE) is no exception. The stock is down 1.1% this afternoon at $6.46, after earlier tumbling to a fresh 10-year low of $6.23. In the options pits, a number of traders think there's more room to fall, and are targeting a quick move south of $6.

Specifically, VALE's weekly 3/13 and April 6 strikes are the two most active puts thus far, and it appears there could be some buy-to-open activity occurring at both. For those initiating new long positions, the goal is for the equity to breach the $6 mark -- territory not explored since December 2004 -- by the respective expiration dates.

From a wider sentiment perspective, put buying has been popular in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), VALE's 50-day put/call volume ratio of 1.29 ranks in the 88th annual percentile. Simply stated, puts have been bought to open over calls with more rapidity just 12% of the time within the past year.

Echoing this is the security's Schaeffer's put/call open interest ratio (SOIR) of 1.44, which rests higher than 87% of similar readings taken in the last 12 months. In other words, short-term speculators are more put-heavy than usual toward VALE.

Technically speaking, today's negative price action just highlights the equity's withstanding technical troubles. Over the past 52 weeks, in fact, Vale SA (NYSE:VALE) has surrendered roughly half of its value. More recently, the equity has lagged the broader S&P 500 Index (SPX) by more than 20 percentage points over the past 60 sessions.


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