Southern Copper (NYSE:SCCO) is Peru’s largest copper producer, with mining operations in Peru and Mexico. The company owns and operates open pit mines and metallurgical complexes that produce copper, molybdenum, zinc and precious metals.
Copper prices have just put in their best five-day performance ever, rallying nearly 20% — far outpacing even the dramatic move in equity prices. Copper stocks have followed suit, with SCCO rallying nearly 16% in that time frame.
Sentiment indicators such as nine-day Relative Strength Index and Detrended Price Oscillator are flashing extremely overbought levels. Valuations are also getting a little stretched, with SCCO now trading at a premium to the S&P 500.
SCCO is also approaching some fairly heavy resistance in the $34 range, along with the 200-day moving average of $34.48. SCCO blew past the 50-day moving average of $29.23 with a little too much vigor to hold at these levels and is finally showing some weakness here. Additionally, SCCO has risen sharply through the Bollinger Bands, which have proven to be reliable indicators of intermediate overbought conditions in the past.
Given my somewhat bearish market viewpoint, combined with the big outperformance of copper to the overall market, I’m looking for SCCO to move back to the 50-day moving average level round $30 by December expiration.
Based on SCCO’s current market price of $32.46 and using a target price of $30, a target date of Dec. 16, 2011, and $1,000 of investment capital, this is an excellent candidate for making some short-term options gains.
To play this with options, visit TradingBlock.com, create a free Instant Login and try the TradeBuilder feature. Input the ticker, target price and date, and investment amount, and you’ll see several ways to trade that include buying a December put or a put spread, selling a December call spread, or selling the stock.
Best of all, you can see a potential profit-and-loss outline for each strategy. If you set up an account, you can hit the “Trade” button on your preferred strategy and be on your way! Create your free login, and get access to these SCCO option trading strategies by visiting the TradeBuilder here.
