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Option Bulls Pounce on Jaguar Mining

Traders are digging for gold in Jaguar Mining.

The mining company received a $1 billion acquisition offer from China Shandong Gold in November, valuing the company at $9.30 a share and prompting a strategic process to explore alternatives. But Jaguar's CEO resigned in December, and the stock dipped back under $7 after the firm indicated that the review process may not end in a deal.

Option activity has been interesting in the last month and really lit up Friday morning. Traders were buying the June 8 calls for $0.80, while selling the June 10 calls for $0.15. This call spread traded more than 5,000 times.

The position allows traders to buy Jaguar for $8, but obligates them to sell it for $10 if the stock goes above that level. The bet cost $0.65, so they'll earn more than 200 percent if the stock rallies to $10 or higher.

Traders use this type of “vertical spread” — buying calls at the lower strike and selling the higher strike — to offset the cost of establishing the position, though it limits upside potential.

Jaguar rose 1.68 percent to $7.28 on Friday, and is up 15 percent in the last month as buyers return to the gold-mining space in general.

More than 13,000 Jaguar calls traded versus just 1,300 puts in the session, a reflection of the bullish sentiment. Total option volume was nearly 5 times average levels.

—Najarian has no positions in JAG.


Additional News: Jaguar Mining Opens Books to Potential Buyers

Additional Views: Dennis Gartman: 8% Gains Ahead for Gold

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Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC's "Fast Money," and co-founder of OptionMonster.com.

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