I bought TECK June $22 calls today.
I am looking for more “buy the dips” names in the market on the whole. We seem to be trading more of a sector-rotation market and that means there are some sectors and names that fall out of favor, then get cheap, then come back in favor. Materials have been a hated sector recently with commodities stagnating and with concerns over the “Trump trade”. TECK is a mining and materials name that I found interesting from both a sector and technical basis.
Let’s look at the daily chart:
Chart from FreeStockCharts.com
I’m looking at two things here – the 200-day moving average just below current prices and the recent range. Holding the upward sloping 200-day moving average is a nice bullish signal that we should see a bounce. Over the last 6 months, this stock has ranged between about $20 and $27, so we’re near the bottom of the range. These two elements combined tell me that I can look for something on a play back to at least the middle of the range and possibly the higher end of the range.
What really would matter here is if Implied Volatility gives me a cheap entry to express this view:
Chart from LiveVol
Implied Volatility is at lows as earnings are behind us. Going forward, this stock will not be trading on last quarter’s earnings, but rather on technical signals and commodity flows. Additionally, if IV can get back into the mid-40s, it would add some decent premium to the June options, and that’s something I would expect to see on a rally as we should see some chase buyers of calls into a rally.
I will make this simple here – I liked the June calls and I’m really playing for a move toward $24. That limits my strike selection to the $21, $22, or $23 strike. Because IV is low, I want an outright call rather than a call spread. With the $21 call about $1, there’s a 3-to-1 R&R. The $22 call is $.70 for a 3-to-1 R&R and the $23 call is about $0.43 for a 2.5-to-1 R&R. I do want to have some vega into the rally, so I chose the $22 call as the $21 call would lose its option characteristics fairly quickly being so close to the current stock price. This was a fairly easy trade to execute since I’m looking for a more meager rally, but with IV at extreme lows, I can still get some decent leverage.
All Services and Content Are Provided for Educational and Information Purposes Only and Are Not Intended as Legal or Financial Advice.
The information and content provided in or through these Services is for educational and informational purposes only. By accessing and/or using the Services you acknowledge that the Services are not intended to be a substitute for legal, investment, or financial advice that can be provided by an attorney, accountant, and/or financial advisor. You further acknowledge that you should not rely solely on the Services in making any investment or financial decision, and should always check with your financial advisor and tax advisor to determine the suitability of any investment.
All information provided in or through these Services is strictly informational and is not to be construed as advocating, promoting or advertising registered or unregistered investments of any kind whatsoever. The information is provided “as-is” and is not guaranteed to be correct, complete, or current. Trade Academy does not guarantee that you will attain a particular result, outcome, or earnings, and you accept and understand that each individual’s results will vary and depend on numerous factors.
Trade Academy is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission (“SEC”) or the Financial Industry Regulatory Authority (“FINRA”). Further, owners, employees, agents or representatives of Trade Academy are not acting as investment advisors and might not be registered with the SEC or FINRA.