[Options] This Setup is Precious

Sean McLaughlin
July 8, 2024

The bull market is on, baby!

But if we expect it to continue, then we're going to need to see some rotation into some new sectors to bring fresh cash into the market and keep the wave going.

One sector that my Analysts feel has the potential to pick up the slack is Precious Metals. And the name that Steve Strazza and I discussed on today's Flow Show has the potential to ride the sector wave as well as play catch up to its big brother Gold.

Here's a chart of Wheaton Metals Corp $WPM:

And when we zoom into a daily chart...

...the price action late last week suggests that the "catch up" trade in $WPM might be starting to get underway.

We're going to play for a 6-month move higher while financing the trade with some shorter-dated short calls in case this takes its precious time.

Here's the Play:

I like buying a $WPM Sept/Jan 65-strike call calendar spread for approximately $1.65. This means I'll be long the January 65 calls and short an equal amount of September 65 calls and the debit I pay today represents the most I can lose:

As you can see from the PnL graph above, our potential position profits at the expiration of the short September 65 calls decline when $WPM trades above 65. The further (higher) we get away from 65, the smaller our profits, and if it goes too far, we could even lose. So if $WPM gets to or through $65 per share while we still have the short September 65 calls on, then we'll close the position for whatever profit it is at the moment and move on.

The hope is that $WPM doesn't quite get to 65 by September expiration, the short calls expire away worthless, and we're left with the long January 65 calls, unencumbered at a net reduced cost, for a ride higher towards a potential $90 profit target.

In the meantime, if $WPM rolls over on us, I'm currently eyeing $53 per share as my stop loss level. Any close below $53 means we're early or wrong and I'll close the entire position to salvage whatever is left of my capital in the trade.

If you have any questions on this trade, please send them here.

If you missed my most recent ASO video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7910.

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