Hedge is at work in Steel Dynamics
David Russell | [email protected]
optionMONSTER's Depth Charge monitoring program detected the purchase of 5,000 August 14 puts for about $0.83 and the sale of an equal number of August 18 calls for $0.40. Volume was more than 13 times open interest at each strike, clearly showing that this is new activity.
He or she probably owns shares in the steel maker, which is up 21 percent in the last three months. Buying the puts protects against a drop, while writing the calls reduced the price of that insurance. It also forces the trader to sell the stock for $18 if it closes above that level on expiration in mid-August.
Including the net cost of $0.43, the minimum exit price will be $13.57 and the maximum will be $18.43. (For more on this strategy, known as a collar, click here.)
STLD rose 0.26 percent to $15.49 yesterday and is hovering around a level where it peaked early last year. That could be leading some chart watchers to think that it's at resistance and poised for a drop.
The collar pushed total option volume to 11.5 times greater than average in the session, according to the Depth Charge.