Long-dated, out-of-money calls suggest massive move.
Amid options trading on unusual activity on Monday, the $20 January 2021 call options on Pretium Resources (PVG) stood out.
With shares around $13.30, the company’s shares would need to rally 50 percent before the option moved in-the-money. With 550 trading days before expiration, and with shares already up 50 percent in the past year, the trade could certainly play out handsomely for traders.
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Over 4,300 contracts of this option traded Monday, against a prior open interest of 275, making for a 16-fold surge in volume.
Pretium acquires, explores, and develops precious metal resource properties in the United States, primarily gold, silver and copper. The company currently has 4 mining leases and 6 mineral claims.
Action to take: At a cost of around $150 per option contract, the trade looks like a way to profit from the continued move higher in mining companies, as well as a leveraged play on the price of precious metals moving higher. The company’s copper exposure could prove turbulent, however, given that the metal is at a multi-year low.
As a speculation, we like the trade up to $175 per contract, as market volatility and the bid in precious metals is likely to continue over the next few months, making the reward attractive relative to the risk here.