Smoothing the trade in ArcelorMittal
David Russell | [email protected]
Our monitoring systems detected the sale of 13,000 December 13 calls for $1.28 and the purchase of a matching number of December 12 calls for $1.82. Volume was below open interest in the 12s, indicating that an existing short position was closed and rolled to the higher strike.
The investor probably owns shares in the European steel giant and sold the contracts as part of a covered call trade. He or she paid $0.54 to make the adjustment and raised by $1 the level at which the stock must be sold. (See our Education section)
MT ended the session up 0.95 percent to $12.79. The stock was roughly cut in half between February 2012 and the middle of last month amid pessimism toward the global economy. It's been working its way higher since then but still trades for less than half its book value.
Yesterday's trade was essentially a time-decay strategy that uses options to generate income. The investor probably thinks that MT has little downside risk but might not rally right away. In addition to the income from selling calls, he or she also stands to collect the company's 5 percent dividend yield.
Total option volume was 4 times greater than average in the session, with calls outnumbering puts by 15 to 1.