The Arena
As the overall market grapples with an identity crisis and world economies at large try to put a lid on inflation I think its evident we have our problems. As I write, the E-mini S&P futures were moving lower but appear to be coming back quickly. Given the uncertainty heading into this week I’m feeling conveniently neutral. Conveniently implying I have no idea what will happen this week with regard to asset prices.
Having said that, stocks managed a rebound of sorts last week to keep us guessing about the official “bear” market just a while longer. As I’ve mentioned, I’m of belief that any rally in price would be sold off and while I still maintain that outlook in the near term I can’t neglect the fact that investors may have already acclimated to their new environment. We are still currently below the all time high in SPY by approximately 19%. For an index that averages around 9% per year that does bare some level of significance.
What do you think…Will we see prices rip higher or is this bear just taking a nap after a large meal?
The Coach
Given the relatively neutral sentiment I’m thinking an iron condor makes sense in Newmont Corporation (NEM). Historically, Newmont looks prone to range bound movements. I realize that depends on the exact range in question but with volatility coming in some it looks like Newmont is finding fair value near its current level. Of course, drawing a trendline on the weekly chart would leave me believing that more downward pressure exists.
Fundamentally, the company is a buy from my assessment with a current book value of about $30 per share I could reasonably expect to see share price move higher. However, with the market still largely uncertain I’m not expecting any sustained bullish action in the next few weeks. Alternatively however, an investment such as Newmont Corporation is in my opinion largely attractive due to its healthy and consistently increasing dividend. As I write this, their payout ratio is at a level that may leave most questioning the sustainability of such a dividend payment. In that light a bearish call spread would probably make more sense. If that dividend we’re to get cut in any way I would expect the rug to be pulled very quickly.
In the end, I’m bullish on Newmont Corporation but with the current market headwinds I’m thinking a neutral play is ideal. What am I saying, its probably best to avoid this one altogether. Here is what the good folks over at Tradingview have to say about the state of NEM going forward.
The Attack
I’m considering a shorter duration iron condor on Newmont Corporation based on the above information. It’s likely another play makes just as much sense here so make sure to use your own research. However, if you’ve been considering an options play that supports a high probability and will provide a reasonable return for the risk then NEM could make sense for you as well.
Additionally, the market looks to be content for this very moment and that only supports my fleeting neutral bias. Can Newmont fight the current bearish trend to stay at this level or is more volatility just ahead? Stay tuned…
Bullish assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 15 JUL 22 60 Put | 15 JUL 22 62 Put | $55.00 | $145.00 | 81% |
Neutral assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 15 JUL 22 57 Put | 15 JUL 22 59 Put | $55.00 | $145.00 | 80% |
| 15 JUL 22 71 Call | 15 JUL 22 69 Call |
Bearish assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 15 JUL 22 70 Call | 15 JUL 22 68 Call | $36.00 | $164.00 | 83% |
God Bless,
Jeff
