2 weeks ago the Professor gave you his inflation stock pick. The idea was to get long Rio Tinto Group (RIO). The trade idea worked even better than expected, and as of this writing, the calls were up over 250%.
The Professor, Mike Parks, is Raging Bull’s Senior Training Specialist.
Mike is a veteran trader and educator, and is adding a level of insight to Total Alpha that can only come from decades of experience in trading and market education.
Mike has incredibly knowledgeable on all things markets and his talent for teaching new traders how to use market signals to choose the right options strategies is unmatched.
The thesis of the trade was based on inflation. You see, inflation has been all over the news as of late, and it has sent tech stocks spiraling. However there are some companies that can benefit from inflation and could continue to do so, and the Professor, Mike Parks, identified just the one that worked in the short term!
RIO
When high-growth tech stocks that make no profit began selling off last March and have continued to crash, there was a lot of money rotated into the commodities sector. Demand for lithium-ion batteries and their necessary materials, such as nickel and lithium, has led to demand for commodities. Worldwide money printing has led to inflation i.e. higher prices for raw materials, and who benefits from this? The miners of these raw materials!
I’ve got some friends over in Australia, and over the last year, they’ve had a commodities boom down under, as nickel stocks and other miners have made all-time highs. One of the world’s largest mining companies is Rio Tinto (RIO), and the trade set up perfectly.
Fundamentals
Rio Tinto Group (RIO) engages in exploring, mining, and processing mineral resources worldwide. The company offers aluminum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium.
As we can see from the chart above RIO’s revenue and income has been growing significantly over the last 2 quarters. They have grown revenues from $44.61 Billion in Q1 2021 to $58.33 in Q3, representing almost a 30% increase over that period. They have also grown net income from $9.77Billion to $18.77Billion over this same period representing 100% growth.
This boring old miner is growing its profits like a FAANG stock, some of whom are actually decelerating, just take a look at FB.
When there is a flight to safety, these profitable mining companies could see significant benefits from rising commodity prices and increased demand for Infrastructure projects and Lithium batteries.
Technicals
On Feb 1st, I noticed a Morning Star candlestick pattern forming, and it set up for a great risk-to-reward trade.
I was looking for a quick pop higher from the Morning Star Candlestick Pattern with a trade back towards the highs of $77.91.
I wanted to pay attention to earnings that are scheduled on Feb 23rd and make sure of the trade off before the announcement.
The Trade
I bought the Feb 75 calls looking for a “risk 1 make 2” trade to happen and we saw that on Thursday, Feb 10th as Rio hit a high of $80.44.
Bottom Line
I’m pretty sure someone once said there’s always a bull market somewhere! While tech stocks are crashing due to inflation, some mining companies are seeing their profits double!
RIO is showing great fundamentals as it is actually benefiting from inflation due to increased prices and demand for its minerals. The commodities boom could be just beginning, and RIO could benefit. The chart set up perfectly, and the Professor used call options to make a trade into Feb 23rd earnings!
The trade idea worked even better than expected, and as of this writing the calls were up over 250%.
