$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.

  • 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?