shares closed up 20 cents, or 2%, to $10.85, but at least one investor is calling for later-term downside in the stock by buying out-of-the-money puts.
More than 5,000 July 7.5 puts hit the tape so far today versus current open interest of 1,178 contracts, indicating investors traded these options to open. The majority of these options crossed at the ask price of 25 cents per contract, suggesting investors expect the stock to drop at least 33% throughout the next five months.
These options have an implied volatility of 54% compared to a 30-day historical volatility of 48%. The July 7.5 puts have dropped six cents on the day, with a 10-delta.
Investors could make profits of up to $7.25 if AUY shares close lower than $7.25 (the breakeven price) at July options expiration. But keep in mind that investors could sell these puts if the stock drops significantly throughout the next month and take profits instead of holding the options until they expire.
AUY shares reached a 52-week high of $14.07 on Dec. 2, but the stock has since sold off roughly 22%. AUY is scheduled to announce earnings on March 3 after the market closes, with analysts expecting earnings of 17 cents a share. At least one investor is betting that the stock could drop after the earnings announcement and bought puts today to protect against a potential slide.
-- Written by Jud Pyle in Chicago
At the time of publication, Pyle did not have a position in the stock. 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."