Shares of iron ore producer Vale (VALE) have been rising in recent weeks as commodity prices have been soaring higher. One trader sees the possibility for a further move from here.
That’s based on the September $25 calls. With 192 days until expiration, 7,504 contracts traded hands compared to a prior open interest of 128, for a 59-fold jump in volume on the trade. The buyer of the calls paid $0.69 to make the trade.
Shares last traded around $20, so they would need to rise $5, or about 25 percent, for the option to move in-the-money. The stock has a 52-week high of $23, so shares would need to break to a new high for the option to close in-the-money.
The Brazilian-based company is up 11 percent in the past year, slightly underperforming the S&P 500 index over the same time.
Shares trade at 6 times forward earnings, and the company has seen its profit margins soar to 41 percent thanks to rising commodity prices.
Action to take: Investors may like shares here, as the company can likely continue boosting its profitability here, as well as continue to pay out dividends.
For traders, the option is in a sweet spot. It has plenty of time for a further uptrend to play out, and is inexpensive relative to potential upside. This could deliver triple-digit returns in the coming months, as long as the current commodity price boom continues.
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.