2 Mining Stocks Set to Bounce

Short-term options are attractively priced on both HCLP and VALE

Aug 23, 2018 at 10:51 AM
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The mining sector has struggled in recent weeks, with a number of stocks hitting new 52-week lows even as the S&P 500 Index (SPX) carves out new highs. However, this technical trouble may have created some buying opportunities, with Hi-Crush Partners LP (NYSE:HCLP) and Vale SA (NYSE:VALE) both pulling back to trendlines that have had bullish implications in the past.

Short-Term Hi-Crush Stock Options are Cheap Right Now

Hi-Crush Partners stock topped out at an annual high of $16.65 on July 27. The shares have since plunged almost 27% to trade at $12.18, and are now within one standard deviation of their 200-day moving average.

hclp stock daily chart aug 23

According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been four other times since 2015 the stock has pulled back to within one standard deviation of this trendline after trading above it for 60% of the time in the previous two months. This resulted in an average one-month gain of 8.42%, with 75% of those returns positive.

Those wanting to bet on a repeat of history may want to consider a premium buying strategy. HCLP stock's Schaeffer's Volatility Index (SVI) of 45% ranks in the 6th annual percentile, meaning short-term options are pricing in low volatility expectations at the moment.

It Could Be a Good Time to Buy VALE Call Options

Vale stock started the month of August trading at a near-term peak of $14.66, but has since shed 11% to trade at $13.01. Nevertheless, this pullback has the shares trading near their 200-day moving average, which has historically marked attractive entry points for short-term trades.

vale stock daily chart aug 23

Specifically, there have been six other times in the last three years VALE has come within one standard deviation of its 200-day trendline after a lengthy stretch above it. On average, the shares have been 7.2% higher one month later, boasting an 83% win rate.

It's an attractive time to buy short-term call options on VALE, too. In addition to its SVI of 35% ranking in the tame 31st annual percentile, the stock's 30-day implied volatility skew of 10.7% registers in the 86th percentile of its 12-month range. This means that near-term calls are pricing in lower-than-usual volatility premium relative to their put counterparts.
 

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