VALE Bullish Call Spread is Undervalued at $0.97

20 September 2023, 10:35 AM

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By Dmitry Pargamanik

How this VALE Bull Call Spread Works

The bottom of the VALE trade card shows us that we would buy one call and sell another with the same 20-Oct-23 expiration (this is a bull call spread as indicated on the top of the card).

Buy: 20-Oct-23 13.5 CALL

Sell: 20-Oct-23 16 CALL

Reasons to Like This Trade

  • You can buy this spread for $0.97 when theoretically it’s worth $1.34. Simply put, the market is implying a theoretical edge of 37.6%.
  • Your maximum gain is $1.53, which means you can make an astounding 157.7% return on your investment in 23 trading days! (That's if the stock closes at 16 or above. $1.53 / $0.97 = 157.7%) At the time of this alert, the stock was trading at 14.27.
  • The stock only needs to close at, or above, 16.00 after 23 trading days for you to realize this maximum return. That’s only a 12.2% gain! If you look at VALE historically drift, you will find that 61% of the time the stock drifted higher than 12.2% in 23 trading days. Based on historical stock behavior (historical stock drift) the spread has a 61% chance of success.
  • 5 out of 7 indicators are pointing to a bullish sentiment in the stock, which is enough to believe there is a decent chance the stock price could hit its mark of 16.00. Look, nobody knows for sure if the stock is going to go up or down, but, if you had to handicap the stock price, these metrics are indicating that VALE is really riding the momentum of bullish signals.
    Metric Signal Bull or Bear
    Relative Performance 1-yr Underperform Bearish
    Relative Performance 3-Mon Outperform Bullish VALE Bullish Relative Performance 3 Month
    Relative Performance 2-Wk Outperform Bullish VALE Bullish Relative Performance 2 Week
    Seasonality Weak Bearish
    Technical Fast Bullish Crossover Bullish VALE Bullish Technical Indicator
    Historical Price Action 68% Uptrend Bullish VALE Bullish Historical Price Action
    Option Order Flow Sentiment Positive Net Option Delta Bullish VALE Bullish Option Order Flow Sentiment

Conclusion

This trade in VALE looks like a good opportunity because:

  1. 5 out of 7 bullish indicators support positive momentum
  2. 157.7% potential return on your investment
  3. Theoretical edge of 37.6%
  4. The stock price is only 12.2% away from the price for you to make the maximum gain!

Don't Let an Opportunity Pass You By!


How to Find More VALE Bull Call Spread Strategies

How you can find bull call spread trade ideas for other stocks


And if you want to find more bull call spreads for other stocks, go to the bull call spread screener


Relative Performance

VALE stock has underperformed the market in the last year with a return of +11.0%, while SPY returned +15.8%. This shows that you would have done better investing in the overall market (through SPY) over the last year than in VALE shares. However, VALE has outperformed the market in the last 3 month and 2 week periods, returning +1.7% and +2.9%, while SPY returned +1.3% and -0.9%, respectively. This indicates VALE has been having a stronger performance recently.

Learn about a stocks relative strength


Seasonality: Weak

The strategy involves holding the position from Sep 20 to Oct 20 expiration. Historically, this has been a weak seasonal period. In the past 12 years, VALE shares have decreased 58% of the time between Sep 20 to Oct 20, while averaging a return of -1.3%. Learn how to look up stock seasonality.

Technical: Fast Bullish Crossover

The moving averages are all crossed in a bearish downtrend but the current price spiked in a bullish crossover before the MA can catch up. Can be early sign of a trend reversal or dead cat bounce.

Historical Price Action: 68% Uptrend

In the last 4 years, there were 28 historical samples of VALE stock price movements over the same time period as this option spread. The stock moved up 68% of the time for an average return of +9.2%.

How to generate statistics on a stocks historical price return distribution

Option Order Flow Sentiment: Positive Net Option Delta

At the time of this VALE trade idea, bullish option order flow exceeded bearish option order flow. The net option delta volume was 150 K.

Learn more about option delta volume.

Find out the latest sentiment from the options market for VALE

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How to Screen for the Best Bull Call Spread

NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated and may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices and were not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


The information is provided for informational purposes only and should not be construed as investment advice. All stock price information is provided and transmitted as received from independent third-party data sources. The Information should only be used as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments and trading strategies. The Company does not guarantee the accuracy, completeness or timeliness of the Information.