BHP Billiton Limited (BHP) is an Australian metals and mining corporation whose primary focus is the production of iron ore and processed natural energy resources such as petroleum. As of the writing of this article (11:15AM CST), BHP is currently trading slightly higher on the day, up 0.37% to 55.40. The stock is currently trading well within the lower portion of its 52 week range of 54.35-73.91 however, just over $1.00 off of the lows for the year which printed late last week. Investor reaction to a potential slowdown in Chinese demand for the company’s industrial metals products has been pointed to as one possible reason for the stock’s steep decline off of 52 week highs which were made in late July.
Today we noticed an interesting block trade taking place in BHP, as a buyer purchased a huge lot of 12,500 Feb ’15 47.5 puts, lifting the offer at $0.59 (total cash outlay of $737,500 before commissions). As this trade went off against an open interest in the option of just 434 contracts, we can safely say this was an OPENING transaction, looking to profit on further anticipated downside in BHP headed into early next year. In addition to this large bearish transaction, a perfunctory glance at the technicals in BHP would also indicate that this stock is primed to move LOWER, as it clings to support just above the recently printed 52 week lows and heads lower, well under the Ichimoku cloud on a daily chart. As such, we will be looking to piggyback this large Put buyer and hope to capture profits as BHP continues its move to the downside.
Trade: I am long the BHP Feb 47.5 Puts for $0.58
Risk: $58 per 1 lot