Long-term trade supports Gerdau

optionMONSTER

Gerdau has been trending higher since hitting a four-year low in the summer, and a long-term trade is looking for the Brazilian steel maker to hold current levels.

optionMONSTER's tracking systems detected the sale of 5,000 2015 January 7 puts in one print for $0.85 on Friday. This is clearly a new position, as open interest in the strike was just 296 contracts before the trade appeared.

The put seller will keep that $0.85 credit as profit if GGB stays above $7 through expiration in early 2015. If the stock falls below that level, the trader will be on the hook to buy shares at an effective price of $6.15 including that credit. (See our Education section)

GGB rose 1.09 percent on Friday to close at $7.91. Shares fell to $5.27 in late June, its lowest price since March 2009.

Gerdau gapped higher after beating third-quarter earnings estimates on Oct. 31 but hit resistance at the $8 level a few days later and has since pulled back. Gerdau saw put selling at the March 8 and June 8 strikes leading up to that report .

Friday's put sale made up almost all of the option activity in Gerdau, pushing total volume in the name more than 5 times higher than its daily average.  

Disclosure: I own GGB shares.


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