Spread trade on Vale (VALE) factors in more downside


As the market heads into the red during Tuesday's trading session, options volume out of the gate remains extremely light. However, an investor in Brazilian steel and iron name Vale S.A. (NASDAQ: VALE ) boosted put volume during morning trading as the shares are on a significant decline. The investor could be calling for upside during the short term and expressed that bet by selling a front-month put spread.

Around 10:14 a.m. EST, a block of 5,700 July 24-26  put spreads changed hands for a premium of 92 cents per spread. The July 24 puts crossed the tape for an average price of 67 cents while the July 26 puts traded for $1.59 per contract. By 10:20 a.m. EST, roughly 7,000 contracts had changed hands in these lines, and the lower-strike puts are home to current open interest of 4,700 contracts while the higher-strike puts are home to current open interest of 8,700 contracts. This options action suggests the investor could have rolled down a long put position to the 24-strike from the 26-strike on a bet that VALE shares could drop slightly more than the original options trader anticipated during the next couple weeks prior to July options expiration.

VALE did not announce any news today, but yesterday the company said its chief financial officer quit and the stock continues to experience pressure because of pledges out of the G-20 summit to reduce spending. VALE dropped $1.82, or more than 6%, to $24.81.

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.

This article appears in: Investing , Options

Referenced Stocks: VALE

Karla Yeh

Karla Yeh

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