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Out of the Box or Old School?

Hey, traders Raghee here. 

Today we’re gonna talk about some recent trades that are built on the foundation (the understanding) that we’re in a reflation environment. This is where certain commodities are outperforming even the equity markets, which are on fire, like the DOW… 

Why is the DOW outperforming tech in the S&P right now? It’s disproportionately benefiting from reflation. Why is copper (and stocks that move with copper) again, disproportionately benefiting right now? 

Right back to reflation…

We can take it to the crude oil market and energy stocks, or to corn and Archer Daniels Midland, and soy bean in Archer Daniels Midland. 

We could even take it to Uranium, and I’m gonna show you a stock that’s tracking with that here. These are setups that we’re taking advantage of in my Sector Secrets Mastery.

In other words, at the end of February when everybody was really getting rocked by the volatility, it wasn’t that the market was weak or strong… it was volatile. 

The moves were two, and sometimes, three times typical price movement ranges. In that environment, it’s actually very difficult to trade. You’ll see that from the largest institutions, to monster hedge funds, spack masters, and even retail traders.

We’ve gotten past that, but what we’ve learned is maybe it’s time to refocus what our watchlist should be. That’s what we’ve done in my Mastery. So we’ve hung on to certain narratives like strong copper which is what set up this trade in Freeport Mcmoran.

We took advantage of the pullback, and now we’re actually looking and geared up for potential higher highs after taking off a profit from our first target. 

STEP ONE: What does this trade look like? 

This trade is stepping in and buying Freeport Mcmoran on the pullback and looking for targets around 36 (then potentially all time highs) as we move forward. What can you expect from a move like this?

Well, Freeport Mcmoran is a very inexpensive name. Therefore, the options are pretty inexpensive too… We picked up these Freeport Mcmoran calls for $4.90. So that’s $490 per option.

We can easily do this in a cash account, it doesn’t have to be a put credit spread or even a call vertical, it’s a fairly low priced option. Now, I’ll give you a few specifics here. What we did is we focused on the May 21st expiration and the 31 strike call. Today, those 31s are trading at 750, so that’s 490 to 750. 

This is actually just in a span of three days or three sessions.

STEP TWO: I’ll give you another good example. 

Right now, Uranium is moving people on. People might be asking, “Uranium Ragh? For real?”

Well, think about reflation. Think about all the things that we’re gonna see increase in cost. Think about, A: from demand, and B: from the increase in inflation that’s gonna carry these commodities higher. 

Well, we actually landed on stock called CCJ.

Now CCJ is tethered to the Uranium narrative, and once again, it looks very similar. In fact, it looks a lot like Freeport Mcmoran, doesn’t it? We waited for a pullback, scooped it up, and this one’s even better. 

This was a $2.80 option that allows us to buy a July 16 expiration call. So July 16, $2.80 for the option and it was a 15 strike, which is already in the money by over a point.

STEP THREE: So what do we do here? 

That’s a 16 call, $2.80 for the 15th in July. So this is a little bit more gradual, but it did jump up which is great, we’ll take it. This thing now is trading at 330, and I do anticipate this too to go test that swing high. I believe it’s reasonable to think that we’ll get a 2X trade out of this, well… we’ll double what we pay.

This is again, a narrative that relies on the underlying commodity in a company that’s tightly tethered to that narrative. It’s reflation, it changes the watchlist, and it changes where we’re looking. We’re not looking where a lot of market participants are looking… 

Most market participants are looking at heavily weighted stocks in the indices, or a lot of the meme names… The meme stocks, right? 

What are we doing? 

We’re actually going to a commodities-driven watchlist that’s rooted in the validity of the current macroeconomic environment. Think outside the box, or in many ways to me, this is thinking very old school. Think about what institutions might be doing when they’re finally large amounts of capital into certain narratives. They’re looking at macro-economic cycles, we’re gonna coattails that.

I’ll see in the next update.

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