VALE S.A.Long
What To Do About Commodities?
Good morning everyone! Every Thursday morning we highlight our favorite trade setup of the week. This week, we will be taking a look at a High Yield setup in VALE.
It's been an interesting week of trading, and the kind of price action & news flow that gets you thinking about the bigger picture. Yesterday, we saw this chart, and it got us thinking about the commodity space & how to best position -- twitter.com/BambroughKevin/status/1440720164136255492
While the sentiment of the tweet we view as somewhat extreme, the idea that commodity production will be an outperforming theme over the next several years seems highly interesting. There are some incredible values in the XLB & XOP space, among them VALE. While the price of Iron Ore has come off drastically over the last few weeks on the back of the Evergrande / China situation (China consumes by far the most amount of raw materials globally), the resulting price from shorting a $12 strike December put seems too good to pass up. Either you get the stock (which pays a great dividend, by the way) at a great price, or you get to keep some free yield off of attractive exposure. Given the long term potential for inflation & commodities, this seems like a Win / Win.
By shorting these puts, you get paid a 3% return over 86 days, which is a higher yield than 90% of dividend stocks & light years ahead of bonds - and that's before you annualize it. What could be better in a market full of richly valued companies? Value, yield, and margin of safety.
We try to put out ideas like this on a regular basis so give us a follow!
It's been an interesting week of trading, and the kind of price action & news flow that gets you thinking about the bigger picture. Yesterday, we saw this chart, and it got us thinking about the commodity space & how to best position -- twitter.com/BambroughKevin/status/1440720164136255492
While the sentiment of the tweet we view as somewhat extreme, the idea that commodity production will be an outperforming theme over the next several years seems highly interesting. There are some incredible values in the XLB & XOP space, among them VALE. While the price of Iron Ore has come off drastically over the last few weeks on the back of the Evergrande / China situation (China consumes by far the most amount of raw materials globally), the resulting price from shorting a $12 strike December put seems too good to pass up. Either you get the stock (which pays a great dividend, by the way) at a great price, or you get to keep some free yield off of attractive exposure. Given the long term potential for inflation & commodities, this seems like a Win / Win.
By shorting these puts, you get paid a 3% return over 86 days, which is a higher yield than 90% of dividend stocks & light years ahead of bonds - and that's before you annualize it. What could be better in a market full of richly valued companies? Value, yield, and margin of safety.
We try to put out ideas like this on a regular basis so give us a follow!
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