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Why trader is buying Iamgold puts

Mike Yamamoto (mike.yamamoto@optionmonster.com)

A long-term trade is positioning for a possible drop in Iamgold as the mining company hovers at four-month highs.

About 5,300 March 4 puts were bought at the same time yesterday morning for $0.30, according to optionMONSTER's Depth Charge tracking system. This is clearly a new position, as open interest in the strike showed 1,574 contacts before the trade appeared.

These puts lock in the price where the stock can be sold through mid-March no matter how far it might fall. The trader could have purchased them as a hedge on a long-stock position or as an outright bet that IAG will give up recent gains. Either way, the puts will expire worthless if shares stay above $4 for the next seven months. (See our Education section)

IAG climbed 2.09 percent yesterday to close at $6.35. The Canada-based gold and silver miner rose after reporting second-quarter results on Aug. 12 but has been trading sideways for the last week as it nears a resistance level that goes back to early April.

Total option volume in IAG reached 10,835 contracts yesterday, well above its daily average of 7,992 for the last month. Overall puts outnumbered calls by more than 3 to 1.

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