Options Trading News

February 14, 2013  Thu 2:47 AM CT

Traders are positioning for a potential drop in BHP Billiton.

More than 5,100 March 75 puts traded in a strong buying pattern yeterday as premiums rose from $0.87 to $1.02, according to optionMONSTER's Depth Charge tracking system. The volume was 9 times higher than the strike's open interest of 579 contracts at the beginning of the session, clearly showing that these are new purchases.

The puts weren't tied to any stock trading identified by our systems yesterday, though they could have been bought as a protective hedge on a long position established earlier. These options, which lock in the price where traders can sell the stock no matter how far it might fall, could also be making an outright bearish bet that BHP will trade below $75 in the next month. (See our Education section)

BHP rose 1.29 percent to $78.53 yesterday. The Australia-based energy and mining company had rallied strongly from about $68 in mid-November to a 52-week high above $80 at the beginning of the year, but it gapped lower on Jan. 11 after downgrades from Macquarie and Bank of America / Merrill Lynch. Shares have been trading mostly between $76 and $79 since then.

Total option volume in the name was 7,360 contracts yesterday, nearly triple its daily average for the last month. Puts outnumbered calls by more than 5.5 to 1.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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