Volatility strategy targeting miners

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Precious metals have been regaining their luster, and one big investor apparently believes that they'll remain in the spotlight.

optionMONSTER's tracking systems detected large trades in Iamgold, Pan American Silver, and Newmont Mining. All three involved the purchase of calls expiring in January 2014 combined with large stock sales. The overall strategy rendered investors directionally neutral on the share price, positioning them to profit solely from an increase in volatility .

The first trade appeared in IAG shortly after the open, with 575,000 shares sold and 25,000 of the 30 calls bought for $0.95. Minutes later, a block of 50,000 PAAS contracts priced at the 50 strike for $0.60, followed minutes later by the sale of 650,000 shares.

Implied volatility has been climbing in both names as investors return to the industry after more than a year of lackluster performance. The best way to take advantage of that move is in long-dated, out-of-the-money options because they have a higher vega . This makes them less sensitive to changes in stock price and more sensitive to the market's expectations of future moves--whether up or down. (See our Education section)

The last of the three big trades appeared in NEM shortly after noon. This time, 14,500 of the 65 calls crossed our systems for $4.90. Less than one minute later, a block of 580,000 shares was sold.

Volume in each of the three contracts was more than 15 times greater than average in the session. All three of the stocks are up by more than 20 percent in the last month.



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.

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


This article appears in: Investing , Options

Referenced Stocks: IAG , NEM , PAAS

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