Metals mining company
Teck Resources (TECK) is closing in on 52-week highs following a strong rally. One trader sees a pullback for the company in the months ahead.
That’s based on the January 2024 $42 puts. With 275 days until expiration, 10,013 contracts traded compared to a prior open interest of 440, for a 23-fold rise in volume on the trade. The buyer of the puts paid $3.16 to make the bearish bet.
Teck shares recently traded for just under $49 after hitting a 52-week high of $49.34, so they’d need to drop about $7, or about 16 percent, for the option to move in-the-money.
Although shares are at a 52-week high, they’ve now essentially traded flat over the past year, with a gain of about 2 percent.
Action to take: Operationally, the company is performing well, and shares may be worth a buy here or on a pullback.
Teck trades for less than 10 times forward earnings, and the company just more than tripled its dividend payout for a yield of about 4.1 percent. That yield may drop when commodities cycle out of favor, but that could be a few years away.
For traders, the short-term trend is up, not down. The July $50 calls, last going for about $3.55, offer mid-double-digit returns or better on a continued rally in the months ahead. Longer-dated puts could be a buy once the current rally runs out of steam, but that may take a few more months.
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.