Call buyers dig into Northern Dynasty


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Northern Dynasty Minerals has had a long slide, and now the bulls are back.

The Canadian mining company owns half of southern Alaska's Pebble formation, a giant deposit of copper, gold and molybdenum. It surged from around $9 to $21 between December and February, then fell all the way back to $11 earlier this month.

Yesterday the shares started moving early and ended the session up 7.05 percent to $12.45. Traders bought the November 15 calls, first for $1.50 and later for as much as $1.75, pushing volume in the strike past 5,000 contracts--more than 4 times previous open interest.

The purchases reflect a belief that NAK will resume its rally over the course of the year. Sometimes investors buy calls rather than stock because it gives them the right to own shares down the road, while reducing capital at risk in the case of a selloff. (See our Education section)

The strategy makes sense for a highly volatile and speculative company such as NAK. The Pebble deposit is estimated to contain 55 billion tons of copper, 69 million ounces of gold, and 3.3 billion pounds of molybdenum. It's co-owned by Anglo American, which is paying to bring it online. But, initial permitting isn't expected until late 2012, so it's still several quarters away from generating revenue.

NAK became a public company in 2003 and mostly drifted sideways until late last year when it started to draw attention. That suggests it's now on the radar of a new set of investors and could be in the early stages of a bullish run.

Overall option volume in the name was 11 times greater than average yesterday, with calls outnumbering puts by 46 to 1.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing , Options

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