Century Aluminum investor calls for limited upside

Century Aluminum Co. shares do not seem to have recovered from the company’s worse-than-exected earnings announcement on April 27, and at least one investor appeared to have sold a hefty number of calls betting on limited upside throughout the longer-term.

At 10:57 a.m. EST, a block of 8,000 out-of-the-money (OTM) January 2011 15 calls changed hands for $2.10 per contract, which was the bid price at the time of the trade. These calls are home to current open interest of 498 contracts, indicating the investor likely sold the block to open short call positions. This trade could turn a maximum profit of the premium paid, or $2.10 per contract, if CENX shares do not rally higher than $17.10 prior to January 2011 options expiration. In the event that the stock does climb higher than the breakeven price, investors could theoretically incur unlimited losses as the stock moves higher. This short call trade is moderately bearish because it factors in a potential 48% rally prior to the point where investors begin to lose money.

For a visual of the risk/reward dynamics of this trade, open a free virtual trading account today to gain access to tools like the profit/loss and probability calculators.

CENX shares have dropped 20 cents, or nearly 2%, to $11.64.