Trade Summary: February 2, 2015
February 2, 2015
Trade Rationale
Most of the focus on the commodities market so far this year has been on crude oil – and rightfully so. But it isn’t just the energy markets taking it on the chin. The vast majority of the raw materials sector is underperforming. And of the major commodities, only precious metals are up on the year.
Of course, a surging dollar and cheap oil are both going to have a negative impact on commodity prices. A slowing Chinese economy is also going to lower demand for commodities in general. Keep in mind, China is the country that drove the last commodity boom.
However, it’s about time for some commodities to regain lost ground. Oil may be in for a long, slow recovery. But, there are plenty of other supply/demand dynamics which could boost a few big commodity names.
First off, I expect a rebound in corn prices. Winter storms have been harsh so far, and there’s more to come. I don’t believe the corn crop is going to be as robust as many expect. In order to take a bullish position on corn, we’re going to buy calls on Teucrium Corn ETF (CORN). It’s one of the easiest, purest ways to trade corn.
Another commodity which has been driven into the ground is copper. Of all the commodities, copper is the one most hurt by the slowing Chinese economy. However, copper prices have reached pre-2010 levels, and I believe they’re going to find support soon. And what better way to play copper than buy calls on Freeport-McMoRan (FCX). Yes, FCX does have gold and oil exposure as well, but first and foremost, it’s a copper company. More importantly, it’s trading at ultra-cheap levels right now.
Finally, we’re going to take a long position in silver. Silver is one of the few commodities actually up on the year. However, it has plenty of more room to run. Don’t forget, the new ECB stimulus plan has given a real boost to precious metals. And it’s just getting started. Silver also shouldn’t be as correlated to the other commodities, so serves as something of a hedge. As far as how to invest in silver, we’ll go with Silver Wheaton (SLW), one of the best silver companies out there.
Keep reading for the details of each trade.
Trade Details
#1) Buy Teucrium Corn ETF (CORN) May 16th 25 Calls up to $1.75
For this trade, we’re looking for upside in CORN. Our first profit point for conservative traders is at $27.50. For aggressive traders, you can hold up to $29. For risk control, the conservative exit level is $23. $21 is the final exit level for aggressive traders.
#2) Buy Freeport-McMoRan (FCX) May 16th 18 Calls up to $1.50
With the FCX trade, we’re also looking for an upward move. Our first exit point for conservative traders is at $20. For aggressive traders, you can hold to $22.50. For risk control, the conservative exit level is $16. And, $14 is the final exit level for aggressive traders.
#3) Buy Silver Wheaton (SLW) June 20th 24 Calls up to $2.15
Finally, we’re looking for a higher move in SLW. Our first profit-taking exit point for conservative traders is at $26. For aggressive traders, you can hold up to $29. For risk control, the conservative exit level is $20. $18 is the final exit point for aggressive traders.
Category: AOA Trade Summary
