Buy Calls on This Commodities Stock

TECK recently pulled back to its 40-day trendline, which has been a launching pad in the past

Feb 15, 2018 at 1:59 PM
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The shares of Teck Resources Ltd (NYSE:TECK) rallied on Wednesday, after the company reported earnings and said it expects strong demand for steelmaking coal this year. While TECK stock was last seen modestly lower today, the security recently sent up a pair of historical "buy" signals -- and now could be an opportune time to purchase call options on the commodity stock.

The shares were last seen trading around $30 -- within striking distance of their Jan. 12 four-year high of $30.79. What's more, TECK is just one of two stocks that is both near a 52-week high and sporting relatively inexpensive short-term option premiums, likely due to the post-earnings volatility crush. Specifically, the equity's Schaeffer's Volatility Index (SVI) of 95.9% is higher than not even 7% of all other readings from the past year.

Since 2008, there have been just two other times at which TECK stock was trading near a 12-month peak and sporting an SVI in the bottom 10% of its annual range. One month after those signals, the security was higher both times, averaging a healthy gain of 8.56%, according to Schaeffer's Senior Quantitative Analyst Rocky White. A similar surge from current levels would place Teck Resources shares around $32.57 -- a fresh five-year high.

What's more, the stock also just flashed a "buy" signal on the charts. As the broader stock market pulled back to start February, so did TECK. The shares fell to within one standard deviation of their 40-day moving average, after a lengthy stretch above this trendline.

TECK stock chart

 

Following the eight prior pullbacks of this kind, the commodities stock was higher one month later all but once, averaging a huge gain of 20.92%! Another such rally from current levels would put Teck Resources stock around $36.27 in mid-March. Options traders who think past is prologue could buy the March 30 call for $1.36, meaning profits would increase the higher TECK shares soar north of $31.36 (strike plus premium paid) by the close on Friday, March 16.


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