Heavy Put Action May Be Signaling Top for Southern Copper (SCCO)

10/11/2010 10:53 am EST

Focus: OPTIONS

Elizabeth Harrow

Financial Analyst, Schaeffer's Investment Research, Inc.

Put players descended on Southern Copper Corporation (SCCO) on Friday, with volume surging to five times the expected level. A total of 6,926 puts changed hands by mid-day, compared to just 1,513 calls that had crossed the tape.

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SCCO's November 36 put is the center of attention, with 5,545 contracts trading so far. About 84% of these contracts traded at the ask price, suggesting they were most likely purchased, and implied volatility on this back-month option has climbed by 2.1 percentage points.

Traders seem to be responding to a new negative note from Barclays, which initiated coverage of SCCO with an "underweight" rating early on Friday. The brokerage firm slapped a $40 price target on the stock, compared to Thursday's close at $38.30.

However, this fresh skepticism from Barclays hasn't done much to hamper SCCO's uptrend. The shares have added 16.4% year to date, with double-barreled support from their ten- and 20-day moving averages underlining the most recent leg of their ascent. At last check, the stock was up 1%.

By Elizabeth Harrow, contributor, Schaeffer’s Trading Floor Blog

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