Thompson Creek Metals is at a two-year low, and one investor is positioning for that the pain to end soon.
In June an investor sold a block of September 10 puts on the thinly traded Canadian molybdenum company, looking for shares to hold their ground. They attempted to bounce in early July, only to crater along with the rest of the market earlier this month.
With the position now underwater, he or she is now adjusting the strategy in hope it will rebound. This time, the investor bought back about 6,000 contracts for $2.15 and sold roughly 6,600 December 9 puts for $1.60. That cost $0.50 to $0.55 while lowering by $1 the level at which the trader must purchase shares. In return, the investor agreed to remain in the trade for an additional three months.
The transaction is an example of how options give investors significant flexibility to manage positions, and swap time for money. (See these articles for other examples of how traders have tried to cope with the recent selloff.)
TC fell 1.27 percent to $7.75 on Friday and has lost 47 percent of its value so far this year. The company is in the process of ramping up production and reported on Aug. 8 that output increased 42 percent in the second quarter. However, it's also facing higher-than-expected capital expenditures at its Endako mine, which could prevent the shares from rallying in the near term.
Given such a situation, with a potentially promising long-term story but short-term headwinds, some investors may prefer to earn income by selling puts rather than buying shares. (See our Education section)
Overall options volume in TC was 28 times greater than average in the session.
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.