Hey there, Power Profit Traders!
Before we get going on today’s Power Profit Trades, be sure to tune into Money Morning LIVE at 8:30 a.m. ET each day, and stay for my Power Profit Trades program from 9:30-10:30 a.m. ET right here.
OH, and save the date for a SPECIAL LIVE SESSION at 9:30 a.m. ET tomorrow, Dec. 9, where I’ll be taking a deep dive into what could be the Crypto Trade of the Century…
And while I’ve discussed various markets on my recent 9:30 a.m. LIVE sessions — not to mention my cats (my friends at Money Map have been begging for these Gentile Family Glamour Shots for a while – ha)…
My wife doesn’t spoil them at ALL
…. in today’s
Power Profit Trades newsletter, I want to discuss a great opportunity that I have researched for a relatively low-risk setup in one of the biggest growth markets in the US and around the globe:
food and fuel.
It’s an unlikely but potent combination for what could be a quick gain in the making for my Weekly Cash Clock team. (To join that team, call our VIP Team at 1-888-384-8339!)
Food & Fuel: The Markets to Be In with a One-Stock Option Play
All it takes to see the setup for one of my great newer trades is to take a look at the receipt from your latest grocery trip.
Food prices in the US and around the globe have been soaring as demand has remained and gained, while production has been limited by the ongoing virus mess as well as labor shortages and challenges.
And overall, food prices — as tracked by the Food & Agricultural Organization (FAO) — have been way out of control. The FAO Food Price Index went up by 47.45% from May 2020 through November.
Then we come to the gasoline (or petrol, for my Kiwi friends) pump.
Again, as you’re filling up your car take a peek at the digital readout as the digits flicker by. Yep, those are big numbers. And for the wholesale cost of US gasoline on the New York Mercantile Exchange (NYMEX), the base cost of unleaded has risen by 538.74% from March of last year through yesterday.
This hasn’t escaped my attention – as I know it hasn’t yours. So, I went to work and found one stock that combines food and fuel that is perfectly set up for a potentially quick gain for my Weekly Cash Clock subscribers — one that will empower them more than the ability to pay their grocery and gas bills (that are definitely on the rise).
And today, I want to continue our theme of fundamental analysis (yes, that is still a thing) and options education, and break down a strategy I often use in lieu of buying the stock or calls outright.
The 1818-founded Dutch Trading Company Cashing in Right Now
The company and the stock behind my Weekly Cash Clock trade originated in Amsterdam, Netherlands – founded by Johann Bunge. This was one of the storied trading companies that has developed and evolved into the modern food and fuel leader for the US and globe… known as Bunge Limited (BG).
Having come to the public market in 2001, Bunge is now based in the heart of the US agricultural market, in Saint Louis, Missouri.
This $12.4 billion dollar company is also at the heart of the market for food and agricultural products, including for livestock feed, flours, grains (including rice), as well as all major edible oils and derived products, like margarine, shortening, and mayonnaise.
It continues its product line-up with must-have fertilizers for crop production around the planet that are depended upon for further food production.
The fuel side of the company comes from must-have products that range from biodiesel and the emerging market for bio-jet fuel, to ethanol. And this also aids its investments in ESG (Environmental, Social & Governance) that has become an increasing requirement by institutional investors around the globe.
Bunge acquired Climate Change Capital Group in 2012 that now heads up all of its environmentally beneficial (and economically contributing) agricultural product initiatives, as well as its biofuels.
US Wholesale Gasoline Future (White) & FAO Food Price Index (Red) – Source: Bloomberg
Food products — whole, refined and processed — all require products from Bunge. And it continues to cash in on the global surge in food and agricultural prices, as noted above.
And on the fuel side of things, biofuels continue to find eager buyers and, more importantly, mandated use by governments increasingly around the globe.
In particular, the US has continued mandates for ethanol inclusion in gasoline, driving continued revenue for the company both directly as well as through traded credits bought by refineries.
And this week, the US Administration and the Environmental Protection Agency (EPA) are set to renew required ethanol and biofuel standards. And with strong support from voter-rich agricultural states, as well as from greener fuel and energy constituencies, Bunge should be a further near-term beneficiary of the EPA and related US mandates.
So, we have strong food demand bringing soaring prices, and fuel supply and demand driving prices higher – with additional benefits from mandated ethanol use – all driving increasing revenue and asset values for Bunge.
And with the unsettled general stock market recently, focusing on food and fuel could be considered one of the safer trades to make right now – especially in one stock that combines both in its businesses and revenues.
And Bunge has revenue exploding right now, with the recent quarter gaining by 38.96%.
Even better, BG stock is now priced at an 80% discount to its trailing sales (price-to-sales ratio), making the case for a very cheap stock and profitable company that is getting noticed right now.
Bunge (BG) Stock Price in 2021 – Source: Bloomberg
The stock has returned 38.12% so far this year – but again, traders are now figuring out not just Bunge’s food and fuel products, but its deeply discounted stock value noted above… setting up an intriguing trade right now.
But I can do better than just the stock…
We recently issued a quicker and less risky bullish trading opportunity to my Weekly Cash Clock subscribers — via a strategy I feel is more appealing than buying BG shares outright.
In fact, the options spread::
- Offers us the ability to still profit on more upside for Bunge shares
- Requires less capital upfront vs. buying 100 shares outright or simply purchasing call options
- Has limited risk, in the event of a downside move
- Doesn’t need a lot of time to play out
The only catch is — our maximum reward is capped, should BG stock skyrocket outside of our range in the very short term.
But let me explain…
A Bullish Trade for Bunge (BG)
I recently shared a bullish call debit spread trade idea around BG with my Weekly Cash Clock tribe, similar to what I do nearly each and every week.
This set up a trade that, as of last night, was already poised for a nice profit in the making for my Weekly Cash Clock members. (For more info on this strategy, call our VIP Team at 1-888-384-8339!)
The call debit spread consisted of:
- Buying to open a near-term call option on BG, that was near the money (close to the stock price) at the time
- Simultaneously selling to open a higher-strike call option in the same series
Just like a Bunge shareholder or a “vanilla” call buyer, the goal of this strategy is for the underlying shares to continue to rise on the charts. (In fact, my Weekly Cash Clock position is looking real good at the moment.)
However, selling the higher-strike call provides a CREDIT at initiation, which helps to partially offset the DEBIT from the bought call option — and lower the maximum risk on the trade (which is the net debit on the spread).
Like I said, though, the catch is — no matter how high BG might rise above our sold call strike, our profits will be limited to the difference between the strike prices, less the net debit.
In summary, with a bullish call debit spread, you get the chance to capitalize on near-term upside for the stock at a lower entry and with limited risk… at the cost of missing out on a bigger payout on the chance the stock skyrockets past both strikes by expiration.
So, kids, that’s your Power Profit Trades lesson for today! Be sure to keep an eye on BG, as well as the additional trades I outlined on Money Morning LIVE and in my recent 9:30 a.m. sessions.
And again, tune into this morning’s Power Profit Trades session at 9:30 a.m. ET right here! I’ll be talking about cryptocurrencies, among other things…
In fact, tomorrow I’ll discuss how I’m setting up the trade of the century for you…
Make sure you’ve marked your calendar for my SPECIAL LIVE SESSION at 9:30 a.m. ET this Thursday, Dec. 9, when I discuss the most important developments for the cryptocurrency market.
See you in the room!
Tom Gentile
America’s #1 Pattern Trader
