Amidst the confirmation for bulls, one hot spot in the option pits yesterday which appears to be a bonafide steely or very convinced call for further upside in the months ahead was in Vale S.A. (VALE). The South American based diversified metals goliath saw huge call volume totaling more than 83,000 contracts in the June 33 call.
Relative to open interest of just 10,200 and the next heaviest concentration of volume being a firm but non-linked 14,700 front month at-the-money March 31 calls—some large interests look to have initiated a bullish position in Vale S.A, the net dollar value of which approaches $11.0 million for an outright call purchase.
With implieds mostly flat, mixed and on par with range volatility values of the past month and change, the initiating party or parties, could have been opening sellers of the contract. That might make even a bit more sense given the market’s own pressured premiums and the fact investors are more aggressive with premium collection strategies when conditions appear to suggest smooth sailing ahead.
With a sub 40 delta, the net directional risk associated with the position currently amounts to a hefty 3.15 million shares. Compared to average volume of more than 23.0M and yesterday’s slightly heavier 26.2M, net-net it’s difficult to assess whether an existing bull was merely hedging some of their risk with a possible call sale or if a fresh and substantial buy-write stepped up. Or as initially noted the activity plain and simple was the result of a bullish call buyer.
Figure 1: Vale SA (VALE) Daily Chart
In truth, whether we’re dealing with a “conservatively bullish” buy-write or a softer delta but limited risk bullish call buyer, I’m not overly-concerned about which it really is in this particular situation. On the other hand, if the initiating party was an outright naked call seller, I’d consider that more pertinent to getting the inside skinny. However, I personally see that type of positioning as the least likely given the risk and margin involved, as well as paying respect to the market’s latest bullish hand.
On the tea leaves and for the technically minded, VALE is also putting together a mostly bullish-looking price chart. The daily view in Figure 1 shows shares near consolidation highs or a handle pivot within a “V-shaped” cup that ultimately now emphasizes the optimistic cup part of the description. As well, PS triggered a EW4 EBOT a while back near the current base lows.
For any bulls that did or might consider suiting up with the long call purchase, within the framework of Elliott Wave, time and price for those traders look to have a decent shot for putting together a double in the weeks and months that lay ahead. To which, this trader sees the bulls work as being less of a steely call than otherwise and all things considered.
Chris Tyler
Senior Staff Writer & Options Strategist
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
