Bears mine Teck for heavy returns

Teck is trading at multi-month lows, resulting in large profits for downside trades.

On May 3, Investitute’s tracking systems found that 4,000 June $20 puts purchased for $1.42 to $1.53 with shares at $19.45. Open interest in the strike was only 580 contracts before the trades appeared, showing that this was fresh buying.

Those puts sold for $2.80 this morning, doubling in value. The stock has declined less than 11 percent in the same time frame, showing how options can far outperform their underlying shares.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

TECK fell 2.89 percent to $17.47 today, declining with other so-called reflation trades. Shares are at their lowest level since last October.

The mining company gapped down from the $22 level after quarterly revenues fell short of estimates on April 25. Its next earnings report is expected on July 27.