What's behind call selling in Royal Gold
David Russell | [email protected]
optionMONSTER's tracking programs detected the purchase of 2,273 July 77.50 calls for $0.50 and the sale of an equal number of October 70 calls by $3.30. Volume was below open interest in July but not October, which suggests that an existing position was rolled from one strike to the other.
The trade is interesting because the investor lowered by $7.50 the level at which he or she must sell shares in the Denver-based company, which owns royalty rights on mining properties. The trader also extended the commitment by three months while collecting a credit of $2.80.
RGLD is up 5.41 percent to $63.88 in afternoon trading but is down more than 20 percent in the last six months. Gold stocks have been pounded recently as slow inflation and weak global growth cause investors to shun precious metals.
Today's trader probably owns shares in RGLD and had previously sold the July 77.50s as part of a covered call strategy. By rolling the position lower, the call seller is essentially lowering the outlook for the stock. (See our Education section)
Overall option volume is more than quadruple the daily average so far today.