Puts pay off quickly in BHP Billiton
Mike Yamamoto | [email protected]
Last Wednesday optionMONSTER's Depth Charge system detected the purchase of some 3,000 June 65 puts for $0.88. Those contracts rose in value since then, trading as high as $1.23 on Friday, and many of those buyers apparently closed those positions with a significant profi as 2,344 of those puts traded in volume well below the strike's open interest of 5,040 contracts.
The difference in percentage changes between the shares and the puts illustrates the leverage that can be obtainted with options. For example, the stock has fallen about 2 percent since Wednesday's intraday high, while the puts have risen as much as 40 percent in value in that same period.
Buying puts locks in the price where traders can sell stock no matter how far it might fall. These options can be used to make a bet that shares will fall or to hedge a long position, but either way they will gain in value if the underlying stock declines. (See our Education section)
BHP fell 0.59 percent to $69.26 on Friday. The Australian mining compaay hit a 52-week high of $80.54 leading up to its last quarterly report in February but then gapped down after those results. Shares have been trying to rebound in the last month but have faced resistance around the $71 level as weak commodity prices weigh on the stock.