One investor is using a complex strategy to bet on Goldcorp,
which is trying to hold levels last seen almost two years ago.
optionMONSTER's tracking programs detected the purchase of about
12,000 October 40 calls for $3.05 to $3.10. Similar numbers of
contracts were sold in the October 36 puts for $2.30 and the
October 48 calls for $0.85. Volume was more than 19 times open
interest in all three strikes.
Because the trader owns the October 40 calls, he or she has the
right to buy GG shares for $40 at any point through Oct. 19. Those
contracts are highly leveraged to movements in the share price and
can double, triple, or more if the stock gains just 20 percent to
The investor also sold other options to reduce the cost and enhance
gains even further, but the move comes with consequences. Because
the puts were sold, the trader is now obligated to buy stock for
$36 if it falls that low. And the position will not benefit from
any gains above $48.
The net result is that the trader collected a small credit and can
earn a maximum profit of $8 per share if GG closes at $48 or higher
on expiration. The investor also faces potential losses to the
downside, so it's similar to owning stock. The main difference is
that the entire position will expire worthless if the shares remain
between $36 and $40.
GG rose 1.06 percent to $39.12 on Friday. It's down more than 20
percent in the last three months and is trying to hold the same
area where it bounced in July 2010. Another miner, Eldorado Gold,
in the session, and Pete recently cited
in the GLD exchange-traded fund, which tracks bullion prices.
Overall option volume in GG was 6 times greater than average on
(A version of this post appeared Friday