Puts Hot as Vale SA (VALE) Gears Up to Release Earnings

Vale SA (ADR) (VALE) traders are buying June puts

by Griffin Kruse

Published on Apr 24, 2015 at 12:44 PM
Updated on Apr 24, 2015 at 12:45 PM

Vale SA (ADR) (NYSE:VALE) is up 9.5% to $7.79, catching a lift from rising commodity prices as the firm prepares to deliver its first-quarter earnings on Thursday, April 30. In the options pits, puts are trading at three times their average intraday pace, with some traders apparently gambling on post-earnings downside for the stock.  

Drilling down, the day's most active option by a considerable margin is the June 8 put, where it appears one trader has bought to open 12,000 contracts in a multi-exchange sweep. By purchasing this put at a volume-weighted average price (VWAP) of $0.73, the investor anticipates VALE will fall beneath $7.27 (strike minus VWAP) by the close on Friday, June 19, when the option expires.

On the earnings front, VALE has been pretty quiet over the past year. In the session immediately following its last four earnings reports, VALE has made a 1.3% move on average. What's more, the shares gained 1.1% after VALE reported fiscal fourth-quarter earnings in February.  

Elsewhere, the brokerage bunch has been pessimistic on VALE, as 79% of covering analysts rate it a "hold," "sell," or "strong sell."  Reiterating this skepticism is the stock's consensus 12-month price target of $7.3, which is below current trading levels.

Today's appetite for puts mirrors recent activity in the options pits. Specifically, VALE's Schaeffer's put/call open interest ratio (SOIR) of 1.65 stands in the 79th percentile of its annual range. Said another way, short-term speculators have only been more put-skewed on VALE 21% of the time over the past year.

Technically speaking, Vale SA (ADR) (NYSE:VALE) had been trending downwards prior to this week's pop. Although the shares have gained roughly 32% this week alone, the stock is still down over 42% on a year-over-year basis.

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