$4.5 Million Potential Risk in MTL Position

Today we saw unusual bullish options activity in Mechel OAO (MTL), a Russian mining company specializing in the production of coal, iron ore, steel, heat, and electric power.  Trading up $0.01 to $2.13 in the Thursday morning session, we saw a trader come in and sell 25,000 MTL April 2 Strike Price Puts for $0.20.  This trade was put on for a $500,000 credit.  The traders total risk exposure is $4.5 million dollars ($5 million less the $500,000 credit if the shares go to zero).  As the numbers show, someone is very confident in their view that MLT shares will hold the $2.00 level through April expiration.

While selling a cash secured put is a good strategy for traders who like being long stock (In MTL’s case obligated to buy MTL at the $2 level, bringing in a $0.20 credit the breakeven would be $1.80) those looking to capitalize on a similar forecast for the stock price could purchase the April 2 Strike Calls for $0.40.  For the trade to be profitable, MLT stock must be trading above $2.40 at April expiration.  MLT shares have not traded below $1.91 thus far in 2014.

One Comment
Andrew Keene

keeneonthemarket.com

Andrew Keene was an independent equity options trader on the Chicago Board Options Exchange for 11 years. He spent most of that time as a market maker in over 125 stocks, including Apple, General Electric, Goldman Sachs, and Yahoo. From 2006-2009, Andrew was the biggest, independent on-the-floor Apple trader in the world…

  • SDS

    Andrew, I’m a home-gamer, and I’m just starting to really get into options trading. Is there any software or websites you recommend so I can access more info about large options volume. i.e., I can see that there was large April 2 put volume in MTL, but I would like to be able to know that it was sold-to-open for $0.20. Any suggestions?