Unusual Options Activity: Rio Tinto Group (RIO)

Iron ore producer Rio Tinto Group (RIO) has seen shares drop nearly 10 percent since the start of the year. One trader sees shares moving higher in the coming months.

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  • That’s based on the October $60 calls. With 91 days until expiration, 10,844 contracts traded compared to a prior open interest of 125, for an 87-fold rise in volume on the trade. The buyer of the calls paid $7.10 to make the bullish bet.

    Shares recently traded for about $66, making the options about $6 in-the-money, and leaving just over $1 in time premium. Rio Tinto shares are about midway between their 52-week highs and lows.

    The ore producer has seen its revenues and earnings slide by double digits over the past year, as commodity prices have trended lower amid fears of a slowing global economy.

    Action to take: Rio Tinto trades for under 10 times forward earnings, a reasonable valuation for a company in a cyclical commodity business. Shares also yield 7.3 percent here, but the payout is based on earnings, which also tend to be cyclical.

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  • For traders, the October calls are a reasonable trade, given how little time premium there is on the option. And the stock started moving higher in late May, a trend that looks likely to continue. The options could see mid-double-digit gains on a further rally.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.