I wrote an article on Southern Copper Corp. that was published August 8th with a bearish short-term income play. This was the income play I wrote about:
The Options Play
Although I believe that Southern Copper (SCCO) should continue to go up, I believe technical indicators are showing me a pullback before it continues up. For this reason I am looking for a pullback before I would play something bullish. So I am choosing a bear put spread while the stock presently is trading at $33.29
--Buy a December put with a strike of '33' (priced at $2.35)
--Sell a December put with a strike of '32' (priced at $1.75)
--Net Debit to Start: $0.60
--Maximum Profit: $0.40
--Maximum Risk: net debit
--Maximum Length of Play: 5 monthsReasoning behind the Trade
--Copper as a whole is still suppressed
--The stock has moved up and looks ready to pull back
--I do not see an immediate change that will push the stock up dramatically
The stock gradually did pull back until the first week of September, when I closed out the trade with a profit as it dipped September 5th below $32. In my article I wrote about not seeing a catalyst to push the stock up farther, but since that time we have had QE3. This will push the stocks up, but that has not happened yet. After the announcement of QE3, an immediate reaction sent the stocks up for a day, but we have had a retreat since then.
I do not believe the stock will continue down in the short term; I believe it will turn itself around. Copper is one of the most economically minded metals and a major gauge in how global economic activity is doing. Copper continues to rise in price, and this is good for SCCO because it will benefit from the growth and the global rebound that copper is predicting. For this reason I expect the stock to continue to move up after this pullback.
(click to enlarge)
Technically Speaking
The stock has continued to climb, and the recent pullback may be temporary. As I observe it, there are a couple things I would like to point out. Before this pullback the 50day MA appears to have been the support line for the last 10 weeks. Will this pullback continue down to the MA, which is at about $32.82 right now? The RSI indicator is revealing the strength that will exist in the stock's upward journey. This last move down (which is pretty substantial) could not move the indicator below 50, which is bearish territory.
Evidence of strength to continue moving up is also evident in the MACD. We may see the MAs just now cross over bearishly, but still high in bullish territory. The stock has come down to the lower Bollinger Band each time it has retreated but this time we will need to see some contraction in the band if that is going to happen, and that means the stock may not move that much as the lower band rises on lower movement and volatility. But overall, I am still bullish on the stock.
The Options Play
The stock is presently trading at 34.13 and I am looking for a bullish short-term income play on the stock to capitalize on what many believe will be a bullish run in the stock.
- Buy the December call with a '34' strike (priced at $1.70)
- Sell the December call with a '35' strike (priced at $1.10)
- Net Debit to Start: $0.60
- Maximum Profit: $0.40
- Maximum Risk: net debit
- Maximum Length of Play: 3 months
Reasoning behind the Trade
- Copper is continuing up, so we play the trend
- QE3 support should keep the stock bullish for the immediate future
- I do not expect any major news for SCCO developing before the elections
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
