Put Selling in Gerdau: Options

An investor sold more than 6,000 June 15 puts in the steel and iron producer.
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NEW YORK (

TheStreet

) -- At least one investor is calling for modest bullishness in steel and iron producer

Gerdau S.A.

(GGB) - Get Report

one week prior to its earnings announcement.

Looking at the June 15 puts in GGB, more than 6,000 of these options hit the tape by the close Wednesday. Investors sold these puts for around $2.30 per contract with the stock trading around $15. These puts closed up 65 cents with a 48 delta, and are home to open interest of zero contracts.

Investors who sold these puts are betting the stock will hold higher than $12.70, but keep in mind that they expect the stock to drop or hold, which is why we call this limited bullishness. This represents a drop of 13% from current levels.

GGB shares closed down $1.30 to $14.59, and they have rallied 200% since their March lows of $4.72. We're not seeing any news out of the company that could have catalyzed the drop in stock.

GGB has not confirmed its earnings announcement date, but the market expects the report during the first couple of weeks in November. It's interesting that at least one investor is calling for a slight drop in the stock months after the earnings report.

Put selling like this is also sign of moderate bullishness, because investors are calling a floor in the stock. The investor is willing to cap his gain at $2.30 if the stock remains higher than $12.70, which explains why this trade banks on limited upside and limited downside.

-- Written by Pyle in Chicago

At the time of publication, Pyle did not have any positions in the stock mentioned. Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."