Markets

Trade sees Gerdau stuck in a range

Brazilian steelmaker Gerdau is hitting resistance at key technical levels, apparently leading one investor to think that it is dead in the water.

optionMONSTER's tracking systems detected the sale of 1,750 March 15 calls for $1.90 and 1,750 March 15 puts for $1.75, resulting in a net credit of $3.65. There was virtually no open interest in either strike when the session began.

GGB is up 0.59 percent to $15.31 in afternoon trading but has dropped after opening above the key 200-day moving average (purple line on chart). The price action suggests that a resistance level is taking hold, which could hold the stock in check for months into the future.

The shares have been fluctuating widely, making a lower low in May after a higher high in April. Such price swings are often followed by increasingly narrow moves.

The stock has fared better than most big U.S. rivals such as U.S. Steel or Nucor in the last three months, but still faces an oversupplied market for the metal.

Selling calls and puts let the investor collect premium as GGB moves sideways. The strategy, known as a short straddle, will make money as long as the shares close above $11.35 or below $18.65 on expiration. Similar market-neutral strategies were also detected last week on Companhia Siderurgica Nacional, another steel producer from Brazil. (See our Education section)

Overall options volume in GGB has been more than 8 times open interest so far today.

(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 Nasdaq, Inc.

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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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