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What's behind Royal Gold put action

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Royal Gold has surged with the precious metal's price in recent days, but one trader is positioning for a potential drop in the mining company's shares.

optionMONSTER's tracking systems detected the sale of 2,400 August 45 puts for $0.02 and the purchase of 2,400 September 45 puts for $0.25. Volume was below previous open interest in the August strike but above it in the September contracts.

The move indicates that a trader is closing the nearer-term position, which expires at the end of this week, and rolling it into the future. He or she is essentially paying a net $0.23 to stay in the trade for another month.

These puts lock in the price where the stock can be sold no matter how far it might fall, allowing the trader to hedge an existing share holding or make an outright bearish bet. Either way, the contracts will expire worthless if RGLD stays above $45 through mid-September. (See our Education section)

RGLD fell 2.63 percent yesterday to close at $56.74. The mining company bounced off its 50-day moving average last week around $48 as the price of gold rose, then gapped above its 100-day average a day after reporting quarterly results on Thursday.

Total option volume in the name topped 7,000 contracts yesterday, 2.5 times its daily average for the last month. Overall puts outnumbered calls by more than 4.5 to 1.

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