Unusual Option Activity: Rio Tinto Group (RIO)

Mineral miner Rio Tinto Group (RIO) has lagged the market, losing 10 percent over the past year and sliding in recent weeks. However, one trader sees the potential for a rebound in the coming months.

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  • That’s based on the June $65 calls. With 153 days until expiration, 8,337 contracts traded compared to a prior open interest of 122, for a 68-fold rise in volume on the trade. The buyer of the calls paid $5.70 to make the bullish bet.

    Rio Tinto shares recently traded for just over $68, meaning the options are already about $3.00 in-the-money. The strike price is well off the stock’s 52-week high of $80.51.

    Besides the share price dropping 10 percent in the last year, revenues declined by the same amount amid some weakness in metals prices. And earnings dropped by 43 percent.

    However, metals prices could trend higher if fears of an economic downturn abate this year. And it’s possible that metals have started a long-term bull market in 2020, which could still play out over the next few years.

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  • Action to take: Long-term investors may like Rio Tinto shares here or on any pullback. The stock trades at less than 10 times forward earnings. Plus, shares pay a 5.8 percent dividend at current prices.

    For traders, the June calls have plenty of time for a multi-month rally to play out. The trade could likely see high double-digit gains on a continued move higher in the coming 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 company mentioned in this article.

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