Brazilian steel maker faces range trade

optionMONSTER

One investor apparently thinks that Brazilian steel maker Siderurgica Nacional is going nowhere in a hurry.

Siderurgica plunged along with most other economically sensitive stocks earlier this year as investors anticipated that the European debt crisis would slow demand. It's been attempting to bottom since the summer but still faces potential resistance at its 100-day moving average.

The trade is designed to profit from SID trading sideways in a range for the next two months. A block of 4,000 December 5 puts was sold for $0.31, while 4,000 December 6 calls were sold for $0.26. Volume exceeded open interest at both strikes, indicating that new positions were opened.

The investor collected a credit of $0.57, which will be their profit if the stock remains between $5 and $6 through expiration. Gains erode outside that range and become losses under $4.43 or above $6.57.

SID fell 1.81 percent to $5.41 yesterday. In addition to a weak technical setup, the global economy has fallen as expected, as evidenced this week when the International Monetary Fund and World Bank lowered growth estimates.

Known as a short strangle , yesterday's option trade is commonly used on situations such as the one now faced by SID, with no clear conviction in the bullish or bearish camp. (See our Education section for other market-neutral strategies.)

Overall option volume was more than 6 times greater than average in the session.

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