Unusual Options Activity: Vale (VALE)

Brazilian iron ore producer Vale (VALE) is down about 30 percent over the past year, and shares are near their 52-week lows. One trader is betting on a rebound in the coming weeks.

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  • That’s based on the July $13 calls. With 49 days until expiration, 24,955 contracts traded compared to a prior open interest of 414, for a 60-fold rise in volume on the trade. The buyer of the calls paid $0.67 to make the bullish bet.

    With a current price near $12.50, the option is near-the-money, and well under the stock’s 52-week high of $19.31.

    Shares have dropped with the company’s profitability in the last year. Revenues slid 22 percent, and earnings are off over 60 percent.

    Yet shares are still relatively inexpensive, trading at less than 5 times forward earnings. Plus, Vale has a hefty 38 percent profit margin.

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  • Action to take: Shares do look oversold here and could potentially move higher in the coming months. Shares pay a dividend of about 5.2 percent at current prices, but that does tend to fluctuate with the company’s earnings and foreign exchange valuations.

    For traders, the call option looks like a reasonably cheap way to bet on a pop higher in commodities in the coming months. The option can likely deliver mid-double-digit gains before expiration.


    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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