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.