Selling Into Strength With This Mining Stock: Bearish Option Trade For Potential Downside Move | IBD

TL;DR

Traders suggest buying put options in Southern Copper as the stock appears extended and may be due for a pullback.

Transcript

foreign hey Traders for today's trade we're looking at buying a put option in Mining stock Southern Copper to play the downside after the stock had quite a strong run higher so taking a look at the stock on Market Smith shares broke out from what appears to be a saucer with handle base on January 4th soon after a move above the 63-26 buy Point shar... Read More

Key Insights

• 🍵 Southern Copper stock broke out from a saucer with a handle base on January 4th, indicating strength in the stock's upward movement.
• 🔊 The stock has been moving higher in strong volume, with nine consecutive up days.
• 🔥 Southern Copper has reached its 20 profit zone and is currently trading tightly, potentially preparing for a move higher or burning out.
• 🖐️ Investors looking to play the downside can consider buying put options to profit from a potential decline in the stock price.
• 🤑 At-the-money options for March 17th are considered cheap, as they have an implied volatility in line with the recent volatility but below the volatility of the past year.
• ☠️ Uncertainty remains regarding how a prolonged period of higher interest rates will affect stocks like Southern Copper.
• 🤕 Copper prices, along with Southern Copper, may suffer if the global economy shows deeper signs of hurt.

Questions & Answers

Q: Why is Southern Copper considered extended and due for a pullback?

Southern Copper has experienced a strong run higher and has reached its 20 profit zone. The stock is trading tightly, which may signify that it's either consolidating before moving higher or burning out.

Q: How can investors play the downside of Southern Copper?

Investors can consider buying put options for Southern Copper. By purchasing a put option, they have the right to sell the stock at a specific price, providing an opportunity to profit if the stock price declines.

Q: What is the recommended put option strategy for Southern Copper?

Traders suggest buying one March 17th expiring 70 put option when the stock is trading around $74. This trade would cost around $1.85 per contract and has a maximum potential loss of $185 if Southern Copper trades above $70 on expiration.

Q: Why are at-the-money options for March 17th considered cheap?

At-the-money options for March 17th have an implied volatility of 34, which is in line with the realized volatility over the past 30 days. However, it is still below the realized volatility over the past year, making the options appear cheap.

Summary & Key Takeaways

• Southern Copper stock broke out from a saucer with a handle base and has been moving higher in strong volume.

• The stock has reached its 20 profit zone and is now trading tightly, potentially preparing for a move higher or burning out.

• Investors looking to play the downside can consider buying put options for Southern Copper.