Unusual Options Activity: Vale (VALE)

Shares of iron ore producer Vale (VALE) are up 22 percent in the past year, but are still well under the year’s highs. One trader sees shares moving higher through the first half of 2023.

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  • That’s based on the June 2023 $18 calls. With 196 days until expiration, 21,539 contracts traded compared to a prior open interest of 822, for a 26-fold rise in volume on the trade. The buyer of the calls paid $1.25 to get into the trade.

    Shares recently traded for about $16, so the stock would need to rise $2, or about 12.5 percent, for the option to move in-the-money. That’s still well under Vale’s 52-week high of $21.29 per share.

    While the stock has recently slid on fears of a slowing economy, with revenue down nearly 20 percent, overall earnings are up 15 percent in the past year. Plus, the company has a massive 45 percent profit margin right now, making the stock look cheap at 6 times forward earnings.

    Action to take: Investors may like shares right now. Besides the current upward momentum in the stock, the last dividend payment came to a 9.3 percent annualized rate. That may change given exchange rate issues or earnings, but it still well covers the volatility of investing in shares.

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  • For traders, playing the current uptrend looks strong. That makes the June calls look like an attractive proposition. They have plenty of time to play out, and aren’t that expensive relative to where shares can particularly move in a rally.



    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.

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