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.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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