Gerdau attracts more cheap bets


Bullish bets on Brazilian steel maker Gerdau have proven unsuccessful in recent months, but that isn't stopping traders from trying again.

More than 8,000 April 7 calls were bought for an average price of $0.09 yesterday, according to optionMONSTER's Heat Seeker tracking system. These are clearly new positions, as open interest in the strike was just 254 contracts before the trades appeared.

The long calls lock in the price where the stock can be purchased through mid- April no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, but the contracts will expire worthless if shares remain below $7. (See our Education section)

The action follows similarly inexpensive call buying in the March 7 strike on Feb. 20 and the February 8 contracts on Jan. 9. The stock has declined steadily in that time, though the March options still have two more sessions until they expire.

GGB closed yesterday unchanged at $6.09 after climbing to $6.22 just before the Federal Reserve released its decision on monetary policy in the afternoon. Gerdau fell to $5.69 on March 7, just above its lowest prices in five years, but has been trading sideways at current levels since.

Total option volume in the name topped 9,300 contracts, nearly 7 times its daily average for the last month. Only 126 puts changed hands in the session, a reflection of the day's bullish sentiment.

Disclosure: I own GGB shares.

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