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Emerging Markets Find Their Way on to Option Bulls List of Opportunities

Posted: 19 May 2020 04:30 AM PDT

As the U.S. and China trade war heats up over Huawei and 5G, it leads you wonder whether it's all bluster or if there is something more to it. China appears to be targeting tech stocks like Apple Inc (AAPL), Oracle Corp (ORCL), Qualcomm Inc (QCOM) and Boeing Co (BA). However, China is still reliant on semiconductor equipment companies like Applied Materials Inc (AMAT), KLA Corp (KLAC) and Lam Research (LRCX).

On the topic of the U.S.-China trade war, Commerce Secretary Wilbur Ross tweeted:

"We must amend our rules exploited by Huawei and HiSilicon and prevent U.S. technologies from enabling malign activities contrary to U.S. national security and foreign policy interests."

The fact is that it will be very difficult to decouple the U.S. and Chinese economies, and option traders might be seeing that as an opportunity to go long Chinese companies that makes up a significant weighting in the iShares Emerging Markets ETF (EEM).

On Monday, the options on EEM weren't trading at above average volume levels. However, the call volume was decided on the bullish side since around 60% of the volume was traded at the ask price. A bulk of the activity was centered on two call strike prices for the 19 JUN 20 expiration. Nearly 9,000 contracts were mostly bought on the $39.50 strike and 13,000 on the $40.50 strike.

Action to Take: The interest in those strike prices provide an expected move above $40 in the next month.

Speculators may want to consider buying the 19 JUN 20 37.50/39 call back ratio spread for around a $0.25 credit. In this trade, one contact is sold at $37.50 and 2 contracts are bought at $39. The trade has a max loss of $125 a contract. if the price closes at $39 at expiration. If the trade is below $37.50 at expiration, the trade makes $25 a contract. The upper breakeven is at $40.25 at expiration. The intent is to play the move to $40 in the next couple weeks, but still has the potential to make money if the stock falls below $37.50.

Two 10% Owners Revisit this Oil & Gas Company as Buying Picks Up Last Week

Posted: 19 May 2020 04:30 AM PDT

Centennial Resource Development Inc (CDEV) is an independent oil and natural gas company. The Company is focused on the development of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin.

The price increased over 13% on Monday as the company terminated its planned sale of its wholly owned subsidiary Centennial Resource Production, LLC to WaterBridge Resources LLC. The sale was terminated because of the inability of WaterBridge to close the deal by May 15 and CDEV now has the right to receive the $10 million purchase price deposit.

On May 13, 2020, there were two buy transactions by 10% owners of CDEV totaling 10.2 million shares and over $9 million of value. The purchase was divided equally between REL US Centennial Holdings and Riverstone Non-ECI. Whether that news was specifically the reasoning behind the insider transactions last week is unknown, but the timing seems to be fortuitous as at may have become clear that it wasn't going to happen.

Action to Take: CDEV is a long opportunity with a $3 price target. The price is currently consolidating following its breakout on high volume at the end of April.

Speculators may want to consider the 16 OCT 20 $2.50 strike price for around $0.10. If the price reaches $3 by expiration, the contract will be worth $50 and provide a 400% ROR. Consider closing half of the position if the price doubles in value.

 

5 Best Silver Stocks to Play the Breakout in the Gold/Silver Ratio

Posted: 19 May 2020 04:30 AM PDT

It's been a tough road for silver prices as the ratio of gold to silver has continued to fall, reaching its highest value in the past 100 years on March 18 at 124:1. That means that it took 124 ounces of silver to buy one ounce of gold.

How does that compare historically? There have only been two other times in history it was near 100, in 1940 and 1991. Since 2000, the ratio has floated between 50 and 80. The ratio broke out of the range in mid-2018 and accelerated in 2020. So far in May 2020, the ratio has fallen sharply and is an indication that silver may be regaining its luster both in real terms and in its ratio to gold.

Since the March 18 low, the price has rallied from $11.84 to over $17. Since 2014, the price of silver has had a hard time breaking $20 as gold prices appear to be ready to test its all-time high in 2011. Part of the reason for this is silver is more of an industrial metal. Only about 19% of silver is stored compared to the rest of it going to some sort of fabrication facility.

With fewer mining companies around and the potential for demand to increase along with a weaker U.S. dollar, it may be just the time to catch silver on a major upswing.

The following list are companies that predominantly mine silver and stand to benefit significantly as silver prices rise.

Silver Stock #1: First Majestic Silver Corp (AG)

First Majestic engages in the production of mineral properties with a focus on silver production in Mexico. They have three mines currently in production in San Dimas, Santa Elena and La Encantada. Their facility in San Martin is temporarily suspended and they are starting projects in La Passilla, Del Toro, La Guitarra, La Luz, and La Joya.

For Q1 2020, the company's all-in sustaining cost (ASIC) was $12.99/oz. That number includes the operating cost, capex, G&A and other expenses. FSM has also increased production consistently but expects 2020 production to be a little less than 2019.

Silver Stock #2: Fortuna Silver Mines Inc. (FSM)

Fortuna engages in the exploration, extraction, and processing of precious and base metal deposits in Latin America. They have two producing mines in San Jose, Mexico and Caylloma, Peru. The have a project under development in Lindero, Argentina.

Their 2019 all-in sustaining cost (ASIC) is around $14/oz.

Silver Stock #3: Hecla Mining Company (HL)

Hecla Mining Company is engaged in discovering, acquiring, developing and producing silver, gold, lead and zinc. The Company and its subsidiaries provide precious and base metals to the United States and around the world. They are the largest silver producer in the U.S. and the fifth largest gold producer in Quebec. Their properties are in Alaska, Quebec, Idaho, Nevada, and Durango (Mexico). The company has $215 million in cash as of their last report and has no debt due until 2023.

The company has established put contracts for $16 silver, and $1,450 and $1,650 gold prices for 2Q and 3Q. The production in their silver mines are based on $14.50 silver prices and $1,300 gold prices. Their ASIC for silver is $10.13/oz after credits.

Silver Stock #4: Pan American Silver (PAAS)

Pan American Silver engages in the exploration, development, extraction, processing, refining, and reclamation of silver mines. The company owns and operates mines located in Mexico, Peru, Canada, Argentina, and Bolivia. It also produces and sells gold, zinc, lead, and copper. The company has cash and cash equivalents of $239.2 million and total debt of $299.2 million.

The company has an ASIC for silver of $8.18/oz and $15.26/oz of silver sold. Their ASIC for gold is $757/oz and $969/oz of gold sold.

Silver Stock #5: MAG Silver Corp (MAG)

MAG is a junior mining company that focuses on acquiring, exploring, and development of mineral properties in Mexico. It explores for silver, gold, lead, and zinc deposits primarily in Juanicipio, Mexico. The company boasts significant exploration upside as only 5% of the property has been explored and a potential 19-year mine life. They also have $132 million in cash and no debt.

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