Markets

Trader thinks Siderurgica will hold

Companhia Siderurgica Nacional is fighting its way higher, and one investor is confident it will hold its ground.

optionMONSTER's monitoring systems detected the sale of 10,000 March 17 puts for $2.50 and the purchase of an equal number of March 14 puts for $1.25. There was virtually no open interest in either strike before the trade occurred.

SID Chart

SID rose 1.73 percent to $17.06 yesterday and is up 17 percent in the last month. The Brazilian steelmaker found support at its 50-day moving average last week (black line on chart) and is now fighting its way above its 200-day moving average (red line). The recovery, which followed a sharp selloff in April and May, could be considered by some chart watchers as evidence that the shares remain in a long-term uptrend.

It also comes as capital increasingly flows back to emerging-market stocks following a period of underperformance earlier in the year. The iShares MSCI Emerging Markets Index exchange-traded fund is flat over the last month versus a 4 percent drop for the S&P 500. Through May 1, it had lagged by about 5 percentage points.

Yesterday's option trade, known as a credit spread, is a market-neutral strategy that let the investor collect $1.25 of premium now in return for insuring the stock against a move below $17. They also purchased the downside puts as a hedge, capping their maximum potential loss at $3.

Unlike a debit spread, which costs money to implement, the investor only needs SID to remain above a certain level, rather than rising to a specific price. (See our Education section)

Overall options volume in the name was 28 times greater than average, according to our tracking programs

(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.

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


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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