In Commodity News 30/04/2015
Metals came to life yesterday, and upside options were hitting left and right.
optionMONSTER’s Heat Seeker monitoring program detected heavy call buying in companies in the space yesterday, ranging from gold producers to makers of mining equipment. The activity could mark a potential sea change in a sector that’s been under pressure for most of the last year.
Vancouver-based New Gold , for instance, traded almost 6,000 contracts in its January 4 calls. Most of them priced for $0.40, and volume was more than 4 times the open interest in the strike.
Direxion Daily Gold Miners 3X (NUGT), a leveraged fund that delivers triple the return of the broader gold-miner index, saw bullish activity throughout the day. More than 5,000 May 13 calls changed hands, mostly for $0.84. Some 4,000 of the Weekly 13.50s expiring this Friday were also bought for $0.10.
Long calls lock in the price where investors can own a stock, so they can profit from a rally while risking only a small fraction of the cost. Their cheap cost can also generate significant leverage on a percentage basis if shares move higher. (See our Education section)
NGD rose 3.12 percent to $3.30 yesterday, and NUGT gained 6.05 percent to $11.63. Metals were the leading sector yesterday as the U.S. dollar weakened against most other currencies. The greenback has pulled back from long-term highs in the last month as mediocre economic numbers dampen expectations for a rate hike by Federal Reserve.
Yesterday, for instance, a -16 reading in the Dallas Fed’s regional activity index lagged the -12 estimate. Initial jobless claims have also missed projections the last two weeks, and housing data on April 16 came in short of consensus expectations.
Other headlines in coming sessions could also weigh on the dollar if they miss estimates. Consumer confidence is due at 10 a.m. ET today, followed tomorrow by first-quarter gross domestic product and the Fed’s policy statement.
In addition to the gold producers, the Heat Seeker detected heavy call buying in mining-equipment maker Joy Global. Blocks of 2,000 contracts each were bought in the May 42.50s for $0.94 and the May 45s for $0.72.
AK Steel also saw the purchase of almost 17,000 Weekly 5 calls expiring May 8 for $0.20. That came just one session before the heavily shorted company announces quarterly results. AKS fell 2 percent to $4.89, and JOY ended the session up 3.63 percent to $42.02.
Several other steel companies received bullish activity as well on Friday, including U.S. Steel and Arcelor Mittal.
