Brazilian iron ore producer
Vale (VALE) is down 12 percent over the past year and 25 percent off its peak. One trader is betting that prices will fall further in the months ahead.
That’s based on the July $14 puts. With 86 days until expiration, 6,721 contracts traded compared to a prior open interest of 211, for a 32-fold rise in volume on the trade. The buyer of the puts paid $0.88 to make the bearish bet.
Shares recently traded for about $14.20, making this an at-the-money trade. The stock is down from its 52-week high of $19.31.
The company’s operations have likewise slowed with the global economy in the past year. Earnings have dropped by over one-third, and revenue is down 15 percent. Plus, the company’s dividend was slashed, although the current yield is still fairly high at 4.6 percent.
Action to take: Given the challenges investing in emerging market economies with interest rates rising and global growth slowing, investors should give this part of the commodity space a breather right now. It’s likely that prices will continue to trend down until they can form a long-term base for a bigger move higher.
For traders, the July $14 puts are an inexpensive short-term trade that could deliver mid-double-digit returns in the coming months before expiration. Traders may want to take quick profits to move on to other trades.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.