A Mining Stock Option Bulls Need to See

VALE shares are trading above a key technical level

Oct 16, 2017 at 2:35 PM
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We've been taking a close look at mining stocks lately, and today we're digging into Vale SA (ADR) (NYSE:VALE). The outperforming equity is trading just above a key price point, potentially signaling extended upside. Plus, data suggests it's a good time to target near-term VALE options.

Jumping right in, the stock is up over 88% during the past year to trade at $10.45. More recently, it's pulled back from its 52-week high near $11.72, only to form a double-bottom just above two noteworthy technical levels. First of all, Schaeffer's Senior Quantitative Analyst Rocky White notes that VALE recently pulled back within one standard deviation of its 200-day moving average.

This "signal" has occurred two other times in the past three years, and the stock has an average 21-day gain of 14% after such occasions. A similar move this time around would put the security near the $12 mark -- or three-year-high territory. Meanwhile, this trendline sits near the $9.50 price point. This level sits just above a 23.6% Fibonacci retracement of the security's rally from early 2016 to its February and September peak. The chart below shows the equity's tendency to bounce from this level.

vale stock

Options traders certainly appear bullish. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 2.57, which ranks higher than 89% of readings from the past year. Said differently, call buying has been more popular than normal, relative to put buying.

VALE certainly seems to be an attractive target for options traders. For one, it has a Schaeffer's Volatility Index (SVI) of 38%, ranking just 14 percentage points from a 12-month low -- indicating low volatility expectations for near-term options. Plus, the security has a Schaeffer's Volatility Scorecard (SVS) of 99, showing it has a strong tendency to make larger-than-expected moves on the charts.


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