Yamana Gold (NYSE: AUY) shares closed up 20 cents, or 2%, to $10.85, but at least one investor is calling for later-term downside in the stock by buying out-of-the-money puts.
More than 5,000 July 7.5 puts hit the tape so far today versus current open interest of 1,178 contracts, indicating investors traded these options to open. The majority of these options crossed at the ask price of 25 cents per contract, suggesting investors expect the stock to drop at least 33% throughout the next five months. These options have an implied volatility of 54%, compared to a 30-day historical volatility of 48%. The July 7.5 puts have dropped six cents on the day, with a 10-delta.
By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize this trade.
Investors could make profits of up to $7.25 if AUY shares close lower than $7.25 (the breakeven price) at July options expiration. But keep in mind that investors could sell these puts if the stock drops significantly throughout the next month and take profits instead of holding the options until they expire.
AUY shares reached a 52-week high of $14.07 on Dec. 2, but the stock has since sold off roughly 22%. AUY is scheduled to announce earnings on March 3 after the market closes (analysts expect earnings of 17 cents a share). At least one investor is betting that the stock could drop after the earnings announcement and bought puts today to protect against a potential slide.
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