A large trader is positioning for a drop in Vale as the stock hovers near multi-year highs.
optionMONSTER's Depth Charge tracking program detected the purchase of 23,000 May 30 puts for $0.61. Blocks of 11,500 contracts each in the May 35 calls and the May 40 calls were sold at the same time for $2.29 and $0.56, respectively. Volume was more than 7 times open interest in all three strikes.
VALE is up 0.48 percent to $35.48 in morning trading. The Brazilian iron-ore giant rallied more than 50 percent between July and mid-January, but since then has been drifting lower. If the shares fall from their current level, it would be a lower high and could make some traders expect further downside.
The next scheduled event that could serve as a potential catalyst is the release of fourth-quarter earnings after the market closes on Feb. 24.
Judging by its size, today's option trade was probably the work of a large institutional shareholder looking to hedge against a drop in the share price. Writing the calls will let them exit the stock if it holds its ground or pushes higher. If it drops, they'll keep their shares but make money on the puts.
The transaction, a modified version of a so-called collar strategy, also paid them a credit of $1.87 million. It was the largest trade in any stock to cross our monitors so far today, and accounted for most of the activity in the name.
(Chart courtesy of tradeMONSTER)
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