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 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)
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