Unusual options activity in Pretium Resources Inc. (PVG) paid off big on Monday, July 9.
Two months prior, Investitute's tracking systems detected bullish trades in the same PVG strike on two consecutive sessions:
-On May 11, 3,200 September $8 calls, expiring on September 21, were bought for $0.50 to $0.65 above open interest of 31 contracts, with shares at $7.24.
-On May 14, 4,100 September $8 calls, expiring on September 21, were bought for $0.60 and $0.65 above open interest of 4,030 contracts, with shares at $7.14.
These call buyers may have placed their call purchases on the belief that the miners of precious metals would report good production numbers, boosting earnings expectations for PVG.
Pretium Resources spiked higher by 14.57% to $9.28 Monday. The Canadian gold and silver miner updated production guidance that morning.
Those calls sold for $2.09 Monday, July 9, quadruple their initial purchase price. The stock rallied 35.5% in the same period, illustrating how options can far outperform their underlying shares.
Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options, no matter how far the stock might fall.
Contributed by Investitute. TheStreet has an affiliate partnership with Investitute.