Gerdau SA (GGB) is a Brazilian based seller and manufacturer of steel products. The company’s stock is currently trading around $7.70 in a 52 week range of $5.27-$9.68. The stock has been weak this year with share prices slipping over 14% year to date. Despite the stocks lackluster performance today’s session has seen some very bullish options flows. Early in today’s trading session a trader sold 3,200 GGB Mar 8 puts for $0.80. This is a very bullish order that indicates this trader strongly believes the stock will close above $8.00 on March expiration. The stock also looks good on a chart. Shares of GGB have not traded in bearish territory since late July according to the Ichimoku Cloud and the stock has been in a strong uptrend since Geradau last reported quarterly earnings on August 1st. We believe that strength in the chart and bullish order flows present us with the opportunity for a covered call set up in GGB.
Trade: Buying 100 shares of GGB at $7.70 for every Mar 8 Call sold at $0.35
Reward: $65 per 1 lot
Breakeven: $7.35
Should shares of GGB close above $8.00 on March expiration this trade will net its maximum potential profit of $65 per 1 lot. The trade will also net some profit anywhere above $7.35. If the stock is above $8.00 on expiration this trade will net an annualized return of 24.2%.
