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Trader mines volatility in Avalon

Chris McKhann (chris.mckhann@optionmonster.com)

Shares of Avalon Rare Metals have seen significant volatility in the last month, and one trader is trying to take advantage of that in the relatively new options on the stock.

AVL is down 4.9 percent to $5.43 today and has lost more than 30 percent from its intraday high of Jan. 4. These losses are significant but take the stock only back to levels of Dec. 27. Shares had been hovering around $4 for most of December before jumping higher and doubling.

Options have been trading in the name only for a couple of weeks, so it is no surprise that the volume has been low. But 3,400 contracts have already changed hands today, almost all of them in the February 5 puts.

optionMONSTER's systems show that 3,160 of those puts have traded against open interest of 378. Most of those were sold in the course of 8 minutes, the largest block of 1,400 going for $0.33.

Those puts have an implied volatility of 85 percent. That is in line with the average implied volatility but well below the 30-day historical volatility, which sits at 133 percent. The seller of those February 5 puts will keep the credit taken in if shares are above $5 at expiration but will be long shares below it.


(Chart courtesy of tradeMONSTER)