Options Trading News

January 10, 2014  Fri 4:14 AM CT

Gerdau has fallen to its worst level in months, but traders are looking for the Brazilian steel maker to rebound in coming weeks.

About 2,600 February 8 calls were purchased yesterday, almost all of them for $0.10, according to optionMONSTER's Heat Seeker tracking system. Open interest in the strike was just 212 contracts before the trades appeared, indicating that this is fresh buying. (See our Education section)

These long calls lock in the price where the stock can be bought through mid-February no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, but the contracts will expire worthless if shares remain below $8.

GGB fell 0.27 percent to $7.49 yesterday, its lowest close since Oct. 1. Shares had been trading mostly between $7.60 and $8.30 for the last three months, but the stock is threatening to break below that range.

Yesterday's call buying pushed total option volume in Gerdau to 13 times its daily average for the last month. Overall calls outnumbered puts by more than 15 to 1, a reflection of the session's bullish sentiment.
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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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