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Call Buyers Strike Gold in Ivanhoe Mines

David Russell|Writer, OptionMonster
Tuesday, 17 Jan 2012 | 6:20 AM ET

The bulls looked for upside in Ivanhoe Mines on Friday morning, and by afternoon they had struck gold.

Less than two hours into the session, OptionMonster's tracking systems lit up with unusual volume in the January 21 calls. Large blocks initially traded for $0.15 and $0.20, but premiums quickly rose amid the heavy buying pressure. By the closing bell, investors were paying $0.85 to $1 for the same contracts.

More than 17,000 contracts traded against open interest of just 4,726. The activity was noteworthy because of how fast the options appreciated and how well they predicted large institutional money flows.

Ivanhoe shares rose 4.97 percent to $19.84. It was initially lower, but rallied in the final hours of trading.

Long calls lock in the price that investors must pay to buy a stock. That gives them significant leverage if their underlying stock makes a big move, but they can also become worthless if a rally doesn't occur — especially in the case of Friday's options, because they expire at the end of this week.

Large blocks can also indicate that portfolio managers are planning to accumulate a stock, because they first buy calls to prevent the share price from running away from them.

Overall option volume in the mining name was eight times greater than average, with calls outnumbering puts by a bullish 5-to-1 ratio.

—Russell has no positions in IVN.

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David Russell is a reporter and writer for OptionMonster.

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