Trade Summary: August 25, 2014

August 25, 2014

 

 Trade Rationale

With all the political and economic turmoil making headlines across the globe, it’s a bit easy to miss less newsworthy items. For example, did you realize that commodities were having yet another down year? It doesn’t seem that long ago when buying commodities of just about any variety was all the rage.

These days, about all you hear about is gold and oil… and even they aren’t talked about nearly as often as they used to be.

However, commodities are still a very important asset class and they shouldn’t be ignored. Yes, most commodities have been going down this year. But, there are still plenty of opportunities to make money in commodities. Moreover, the entire class could be on the verge of a rebound.

In order to trade this theme, we’re going to take long positions on oil, silver, and an all-inclusive commodity index.

To start with, we’re going to buy calls on an oil stock. Despite the sharp drop in crude oil prices over the last month, several major integrated oil companies are still trading a little higher than I like. As such, the calls we’re buying are on Total (TOT). The huge, French oil company is trading right around its 200-day moving average and carries a very reasonable valuation.

Another commodity down big this past month is silver. In fact, silver has gotten hit a lot harder than gold. I don’t believe that gold/silver relationship is going to last. As such, we’re buying calls on Silver Wheaton (SLW). SLW is a silver streaming company and has been sliding lately. We’re betting on a rebound.

Finally, let’s buy calls on iPath DJ-UBS Commodity ETN (DJP). DJP is my favorite commodity index as it doesn’t tend to overweight the larger commodities like most of the index ETFs do. Nearly the entire commodity complex is down this year, so a bet on the whole asset class improving is a good play here.

Keep reading for the details of each trade.

 

Trade Details

#1) Buy Total (TOT) November 65 Calls up to $2.30

We’re looking for a higher move in TOT. Our first profit point for conservative traders is at $68. For aggressive traders, you can hold up to $72. For risk control, the conservative exit level is $58. $54 is the final exit level for aggressive traders.

#2) Buy Silver Wheaton (SLW) November 25 Calls up to $1.30

In this case, we want SLW to go higher as well. Our first exit point for conservative traders is at $27. For aggressive traders, you can hold to $29. For risk control, the conservative exit level is $22. And, $20 is the final exit level for aggressive traders.

#3) Buy iPath DJ-UBS Commodity ETN (DJP) October 36 Calls up to $1.50

Finally, we’re looking for a higher move in DJP. Our first profit-taking exit point for conservative traders is at $38. For aggressive traders, you can hold up to $40. For risk control, the conservative exit level is $35. $33 is the final exit point for aggressive traders.

 

Category: AOA Trade Summary