Pan American Silver Corp. (NASDAQ: PAAS )
shares are on the rise during Tuesday's trading session without any
clear catalyst, but options action on the tape so far suggests an
investor expects the upside to be short-lived and expressed that
bet by selling near-term calls.
At 10:34 a.m. EST, a block of
3,630 August 28 calls changed hands for $1.20 per
, which was closer to the bid price when the volume hit the tape.
These out-of-the-money (
) calls are home to current open interest of just one contract,
indicating the investor traded this block to open. This options
action indicates the investor took in a premium of $1.20 per
contract ($435,600 in total for the 3,630-lot) on a bet that PAAS
shares will not be trading higher than $29.20 at August options
expiration, or that the stock will not rally more than 8% prior to
expiration. If the stock does hit a ceiling and stays below the
breakeven price, this short call trade could turn a maximum profit
of the premium collected, or $1.20 per contract. If PAAS shares
rally higher and are trading beyond the breakeven price at
expiration, maximum loss on this short call position is
theoretically unlimited to the upside.
While selling calls bets on limited upside, the strategy also
allows for slight upside before the investor loses money - this is
why this is a moderately, not exceedingly, bearish play. For a
visual of this short call position, build a profit/loss graph by
opening a free
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PAAS did not announce any news today to account for the pop-up
in the stock. PAAS shares are currently up more than 1%, or 34
cents, to $26.97.