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Royal Gold trades see end to slide

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Royal Gold dropped sharply on poor quarterly results yesterday, but traders apparently believe that further losses will be limited.

More than 2,200 December 37.50 puts were sold for $1 to $1.30 yesterday, according to optionMONSTER's tracking systems. These are clearly new positions, as open interest in the strike was just 1 contract before the trades appeared.

The traders collect the premium from the option sales and are looking for RGLD to stay above $37.50 through expiration in mid-December. If the stock falls below that strike price, these put sellers will be on the hook to buy shares at that level. Investors sometimes sell puts this way in hopes of picking up a stock at an effective discount to existing levels. (See our Coaching section)

RGLD plunged 14.27 percent yesterday to close at $40.26. The Denver-based precious-metals company gapped down from about $47 at the open after missing earnings and revenue estimates.

Total option volume in the name topped 10,700 yesterday, more than 8 times its daily average for the last month.

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