Mining Believer Keeps the Faith as China Preps Stimulus: Options Recap

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Metals are tipping today thanks to China stoking its economy, and someone is looking for the group to keep moving.

Here’s one of the options market’s largest transactions so far today, targeting Australian mining giant BHP Billiton (BHP):

  • A block of 22,000 August 55 calls was sold for $0.18, although volume was below open interest.
  • A block of 22,000 January 60 calls was bought for $0.71.

Remember, calls fix the price where a security can be purchased, so they tend to appreciate when shares rally. Today’s activity was probably the work of an investor who was holding the shorter-dated 55s and took advantage of today’s pop to exit them. (See our Knowledge Center.)

He or she then used the proceeds, along with an additional $0.53, to roll into the January 60s. Making the adjustment gives an additional five months to profit from continued gains.

BHP rose 4.76 percent to $50.53 in early afternoon trading, and has squeezed into a tightening range this year. Today’s call buyer may expect it to accelerate if the recent highs around $52.50 are broken. The big news driver was an announcement overnight that China would cut taxes and spend more on infrastructure — potentially good news for materials like copper, coal and iron ore.

Overall option volume in BHP is almost 12 times the daily average today, with calls accounting for a bullish 94 percent of the total.

BHP Billiton (BHP) chart with tightening range and 50-day moving average.
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.