Schnitzer Steel draws call selling

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Schnitzer Steel rallied along with the rest of the market yesterday, but one investor sees limited upside in the scrap-metal company.

SCHN Chart optionMONSTER's tracking systems detected the purchase of 2,288 July 40 calls for $0.75, followed seconds later by the sale of an equal number of August 40 calls for $2.10. Volume was below open interest in the July contracts but not August, indicating a short position in the calls was rolled forward by one month.

SCHN rose 3.79 percent to $39.16 yesterday but is down 28 percent since April. The steel company has gotten punished along with other industrial-metal companies amid worries about the strength of the global economy. A day earlier the Wall Street Journal reported ominously that steel prices fell in June.

Yesterday's option trade allowed the investor to collect $1.35 of premium in return for sticking with the short position for an additional month. It could have been implemented by a shareholder as part of a covered call strategy or as a naked position by trader with a negative outlook on the shares. (See our Education section)

The trade reflects a belief that upside in SCHN will be limited at $40. Chart watchers may consider the level important because it served as support in late January and again in June.

Overall option volume in the name was five times greater than averaged yesterday.

(Chart courtesy of tradeMONSTER)




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

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This article appears in: Investing , Options

Referenced Stocks: SCHN

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