Sentiment has been improving toward metal stocks, and one investor is betting big on Brazilian steel maker Gerdau.
optionMONSTER's tracking systems detected heavy put selling the company, which still trades for less than book value despite climbing 23 percent in the last three months. They first sold 3,100 June 8 contracts for $1, followed minutes later by 3,600 March 8s for $0.80. There was barely any open interest at either strike, so new positions were initiated.
The investor is on the hook to buy GGB for $8 on the respective expirations, no matter how low it might be at the time. Above that level, he or she keeps the premium and the contracts expire worthless. Today's trade is unusual because they used in-the-money contracts, which increases their leverage to a rebound. (See our Education section)
GGB is up 0.46 percent to $7.72 in midday trading and has been rebounding since hitting a four-year low of $5.27 in June. The shares are now attempting to hold support around the same $7.50 level where they consolidated in September, which could make some chart watchers bullish.
Steel makers have been outperforming the broader market recently as investors find value in an industry that lagged for years and now stands to benefit from a stronger global economy.
Total option volume in GGB is 13 times greater than average so far today.
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