Traders Mine for Rally in Rio Tinto

By Mike Yamamoto of OptionMonster

NEW YORK -- The bulls are piling into Rio Tinto ( RIO) ahead of its earnings report in two weeks.

More than 7,000 September 60 calls traded for 90 cents to $1.15 on Thursday, according to OptionMonster's tracking system. These are new positions, as open interest in the strike was just 72 contracts before the trades appeared.

These long calls lock in the price where the stock can be purchased through mid-September no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, providing potentially significant leverage, but the contracts will expire worthless if shares remain below $60.

Rio Tinto rose 0.79% to $58.42 on Thursday. The global mining company has been working its way higher since bouncing off long-term support near the $51 level in mid-June.

The U.K.-based company is scheduled to release quarterly results on Aug. 7. Industrial metals have been strong recently, and the positive reading in China's purchasing managers index this week may increase bullish sentiment.

Total option volume in the name topped 11,000 contracts Thursday, triple its average volume in the last month. Overall calls outnumbered puts by a bullish 12-to-1 ratio.

Yamamoto has no positions in RIO.

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.

If you liked this article you might like

Rio Tinto Could Offload Assets to Generate up to $10 Billion, Macquarie Says