Options Trading News

March 31, 2014  Mon 10:11 AM CT

Teck Resources has been weak for years, and traders are looking for the bearish momentum to continue.

optionMONSTER's Depth Charge monitoring program detected the purchase of 6,000 May 20 puts for $0.45 and the sale of an equal number of May 18 puts for $0.12. Volume was more than triple the previous open interest in each strike, which suggests that new positions were initiated.

Known as a put spread, the trade cost $0.33 and will generate profit of 506 percent if the mining company closes at $18 or lower by expiration in mid-May. It hasn't seen that level since 2009.

TCK is up 0.35 percent to $21.68 near midday trading but has lost almost 19 percent of its value in the last six months. It's struggled against weak prices for coal and copper, and shares are now attempting to hold the same $20 price range where they bounced last year.

Like short selling, the put spread would profit from a breakdown through that support level. But unlike short selling, the investor can only lose their initial outlay and therefore carries much less risk. (See our Education section for more on how safeguarding your capital with options.)

Some 12,400 contracts have traded in the name so far today, almost 8 times its daily average for the last month. Overall Puts outnumber calls by a bearish 66-to-1 ratio.
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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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