Jaguar Mining Call-Buyers Pounce

By Pete Najarian, co-founder of OptionMonster

NEW YORK (OptionMonster) -- Traders are digging for gold in Jaguar Mining(JAG).

The mining company received a $1 billion acquisition offer from China Shandong Gold in November, valuing Jaguar at $9.30 a share and prompting a strategic process to explore alternatives. But Jaguar's CEO resigned in December, and the stock dipped back under $7 after the firm indicated that the review process may not end in a definite transaction.

Option activity has been interesting in the last month and really lit up Friday morning. Traders were buying the June 8 calls for 80 cents while selling the June 10 calls for 15 cents. This call-spread traded more than 5,000 times.

The position allows traders to buy Jaguar shares for $8 but obligates them to sell it for $10 if the stock goes above that level. The bet cost 65 cents, so they'll earn more than 200% if the stock rallies to $10 or higher.

Traders use this type of "vertical spread" -- buying calls at the lower strike and selling the higher strike -- to offset the cost of establishing the position, though it limits upside potential.

Jaguar's stock rose 1.68% to $7.28 on Friday and is up 15% in the last month as buyers return to the gold-mining space in general.

More than 13,000 Jaguar calls traded versus just 1,300 puts in the session, a reflection of the bullish sentiment. Total option volume was nearly five times average levels.

Najarian has no positions in JAG.

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