Markets

Companhia Siderurgica Nacional (NYSE:SID) spread trade bets on volatility

Companhia Siderurgica Nacional (NYSE: SID ) gained 28 cents, or more than 1%, to $17.04 during afternoon trading. The stock is trading roughly 27% higher than a recent low of $13.39 reached in May. The slight upside on the day occurs without any notable news on the company, but options action on the tape suggests an investor could be betting that the stock will be hard-pressed to rally more during the next eight months.

At 12:03 p.m. EDT, a block of 10,000 March 2011 14-17 bear put spreads changed hands for a premium of $1.25 per spread. The March 14 puts are home to current open interest of zero contracts while current open interest in the March 17 puts is just 14 contracts. This volume versus open interest relationship suggests investors opened the put spread positions on a bet that SID shares could drop at least 17% during the long term.

The lower-strike puts crossed the tape for $1.25 per contract while the higher-strike puts traded for $2.50 per contract. A look at time and sales shows the investor sold the 14-strike puts and simultaneously bought the 17-strike puts to pay the debit of $1.25 per spread. This debit also represents the maximum risk on this put spread, which occurs if SID shares are trading higher than the long put strike at expiration. The maximum profit on this spread is $1.75 per spread, or the width of the spread minus the premium paid. Investors will collect the most amount of profit if the stock is trading lower than the short put strike at expiration.

We know this put spread buyer tied the options trade to a long stock position and bought roughly 190,000 shares of stock for $16.88 per share. Investors who tie a stock position to options action could be more interested in trading volatility instead of just direction. A stock price of $16.88 and the premium of $1.25 per spread equates to an implied volatility of 50% in the 14-strike puts and 47% in the 17-strike puts. The stock's 30-day historical volatility is roughly 40%. One thing that could be a catalyst for near-term volatility would be the release of earnings results. SID has not confirmed when they will release results. But if recent history holds, it is likely to be next week.

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


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

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