Unusual Options Activity: Vale (VALE)

Brazilian iron ore producer Vale (VALE) is down 17 percent in the past year, with most of that decline occurring in just the past few weeks. One trader sees a potential rebound in the coming weeks.

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  • That’s based on the April $15 calls. With 32 days until expiration, 62,023 contracts traded compared to a prior open interest of 1,004, for a 62-fold rise in volume on the trade. The buyer of the calls paid $1.12 to make the bullish bet.

    Vale shares recently went for about $15.50, so the options are already about $0.50 in-the-money. The strike price is well under the 52-week high of $21.29 per share, and the stock’s recent high over $18 per share before ethe recent pullback.

    The global economic slowdown has impacted the company’s operations, with a 14 percent drop in revenue over the past year, and a 35 percent drop in earnings.

    Action to take: Investors may still like shares here despite the short-term fears. Vale trades at just 7 times forward earnings, and sports a 42 percent profit margin, a hefty level for a commodity-oriented company. Plus, shares yield about 4.4 percent at current levels.

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  • For traders, the April calls look reasonable given how shares have dropped to the point of looking oversold over the short-term. The trade can likely deliver mid-double-digit gains in the coming weeks before expiration.


    Disclosure: The author of this article has no position in the company mentioned here, and does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.