Canada’s mining sector has gone deep into correction, falling about 24% from its recent high (see Blog “Building Momentum”).

This fallout was the result of a strong US dollar arising from the eurozone crisis and fears that the pace of the global economic recovery would weaken. In the process, depressing commodity prices with knock-on effects for the Canadian metals and mining sector. Matters weren’t helped by the sudden imposition of an increased royalty on mining operations in Australia.

But – and there’s always a “but” – the trashing of Canada’s mining sector may turn out to be a blessing in disguise for options traders. The steep decline in mining stock prices has led the S&P/TSX Capped Metals and Mining Index to drop below its 200-day moving average, often a sign that trading momentum has taken a market into oversold territory. Perhaps a little too far too fast?

More importantly, it is worth noting that demand from Asia, especially from China, for Canadian metals isn’t slackening (China recorded near 12% GDP growth in the first quarter). Markets may have forgotten, for a moment, that Greece isn’t the centre of the world. When they remember again, metals – and all commodity – prices are likely to recover as appetite for the supposed safety of the US dollar wanes.

If you played the downside on Teck, you might want to look at buying the shares at current levels. And with the spike in option premiums directly resulting from the eurozone crisis, you might look at writing covered calls. With Teck, buy the shares at $33.75 and write the August 34 calls at $3.70. The three-month return if exercised is 13.18% and return if unchanged is 12.32%.

More aggressive traders might look at buying calls on the iShares S&P/TSX Capped Materials Index Fund (TSX: XMA). Say the XMZ July 18 calls at 75 cents.