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Option Bulls Bet on a Rally in Silvercorp

Monday, 12 Mar 2012 | 6:27 AM ET
Silver bar and coins
Thomas Northcut | Photodisc | Getty Images
Silver bar and coins

Silvercorp Metals has been churning, and now the bulls are looking for a rally over the next month.

OptionMonster’s tracking systems show that the April 6 calls traded heavily in the silver miner on Friday as more than 3,000 changed hands for $1.30 and $1.35 against open interest of just 72 contracts. This means that new money was definitely being put to work on the long side.

Silvercorp shares closed at $7.25, up 3.28 percent, so the calls were in the money. They lock in $6 as the entry price on the shares.

If Silvercorp rallies, these contracts will deliver some major leverage to the upside, but they can also lose value in a hurry if it falls. The April 7 calls also found a few buyers.

The company engages in the acquisition, exploration, development, and operation of silver mineral properties in China and Canada. It's been stuck between $6 and $10 since late August, and those call buyers are betting that it's time for the stock to break out.

More than 8,700 options contracts traded on Friday versus its daily average of about 2,900. Calls outnumbered puts by 5 to 1.

—Najarian has no positions in SVM.

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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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