Buy Alert: April 15, 2014

| April 15, 2014

Buy Alert: April 15, 2014

 

Option Strategy:

Buy Cliffs Natural Resources (CLF) June 20, 2014 $17.00 PUTS for $1.05 or better.

 

Commodity Outlook: Industrial Metals

Important Chinese economic data came out this morning…

And much to bulls’ dismay, China is losing economic momentum.  In fact, according to the AFP survey, Q1 GDP came in at 7.3%.  That’s lower than analysts’ estimates and lower than the country’s official forecast of 7.5% growth for 2014.

And listen to this…

China’s National Bureau of Statistics comes out with the official GDP reading tomorrow morning.  If the government report confirms the AFP survey, we’ll likely see weakness in various commodity groups.

But the group likely to get hit hardest is industrial metals. 

As you may know, China is the largest consumer of industrial metals on the planet.  And if Chinese growth comes in below expectations, we’ll likely see bears enter the industrial metals space.

Here’s a great way to play the potential downside in industrial metals.

 

Resource Company: Cliffs Natural Resources (CLF)

Cliffs is a leading international producer of iron ore and metallurgical coal.  Ever since the company hit a 52-week high of $29 in November 2013, shares have been stuck in a downward trend. 

I expect this bearish trend to continue as Chinese economic data causes increased investor worry. 

What’s more, it’s growing increasingly likely that US equity markets are on the verge of a correction.  If so, broad market selling will add even more fuel to the bears’ case in Cliffs Natural Resources.

So here’s what we’ll do…

Let’s buy the CLF June 20, 2014 $17.00 puts for $1.05 or better. 

The current bid/ask spread for this contract is $0.87/$0.90. 

Pay no more than $1.05 per contract!

Our official entry price for performance tracking is $0.90.  Your price may be higher or lower.

 

Exit Strategy:

Cliffs Natural Resources

Remember, we want CLF to trade lower.  Our first profit target is the $17.50 technical support area.  We could see additional downside for CLF if Chinese data continues worsening in coming months.  In such a scenario, CLF may drop to our second profit target of $16.00.

The risk control price is $21.50.  If CLF rises above that level, conservative investors should consider closing this trade to conserve capital.

 

Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.