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Commodities are back in the market’s spotlight, as demand for metals, crude oil and other materials are once again on the rise.
But many people are wondering whether this is the start of a sustainable bull market in commodity stocks or a temporary blip before
they resume their decline.We asked our OptionsZone experts to offer up their best commodity plays, and whether you’re bullish or bearish on commodities long-term,
we’ve got something for you.The whiplash effect of last year’s selling due to the migration from the "crowded" commodities trade has created some
relative bargains amid the market’s rubble. At the same time, there are some great shorting opportunities for investors who are skeptical
about a continued rally in commodity stocks.Get our 12 commodity bargain trades now.
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SPDR Gold Shares (GLD)
By Chris Johnson and Jon Lewis
Gold’s recent pullback to significant support has the SPDR Gold Shares (GLD)
bouncing around the $90 level. The possibility of continued weakness in the U.S. dollar is greater than normal given the government’s
attempts to stimulate the economy through the Treasury markets.Given this backdrop, we believe that short-term traders would do well to maintain a position in GLD with a target exit of $100.
Learn about The Secret Advantages of Trading Options.
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PowerShares DB Commodity Double Long ETN (DYY)
By Andrew Houghton and Nick Atkeson
Although some element of rising commodity prices can be ascribed to a recognition that demand is not going to zero and OPEC’s recent
production quotas are holding, the most important reason for the resurrection of commodities is the weakening U.S. dollar.A falling dollar is inflationary. Commodity prices tend to rise during inflationary periods, particularly in cases when the commodity
is traded on a worldwide basis in dollars (e.g., crude oil).There are lots of commodity exchange-traded
funds (ETFs). But if you really want to go for the gold, buy the PowerShares DB Commodity Double Long ETN (DYY).
Year-to-date, the DYY is up about 1%. If the thesis holds that the dollar will weaken, DYY is just starting to move.
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Stillwater Mining Company (SWC)
By Michael Shulman
For those of you who think platinum is just a credit card or jewelry, it is also the catalyst used in catalytic converters — standard
equipment in cars in North America and parts of Europe. Well, car sales aren’t exactly humming — and won’t be for many years.
So it’s time to think about shorting Stillwater Mining Company (SWC),
an operator of two mines in Montana, and a major recycler of platinum from used catalytic converters.SWC’s mine ore is degrading in quality, due to age, therefore increasing costs. Prices fell, but then rose during a recent mini-boom,
but why? Car demand is down, as is jewelry demand. And the number of autos being scrapped has shrunk dramatically as credit-strapped
Americans keep their cars on the road longer.The company lost a bundle — more than $100 million last year — and will do the same this year. Look at put
options at least a few months out. I’d start with October.
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PowerShares DB Crude Oil Double Short ETN (DTO)
By Toby Smith
Oil prices are way ahead of the fundamentals — demand continues to fall worldwide, and inventories are at record highs.
The PowerShares DB Crude Oil Double Short ETN (DTO)
seeks to mirror 200%, before fees and expenses, of the inverse daily performance of the Deutsche Bank Liquid Commodity index — Optimum
Yield Oil Excess Return.This double-short ETN is a direct play on oil pulling back to $40 level. I especially like DTO under $160, and my target is $220.
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Freeport McMoRan Copper & Gold (FCX)
By Chris Johnson and Jon Lewis
While we like gold’s potential, some larger commodity gains appear to be lurking. Amid these opportunities we see Freeport McMoRan
Copper & Gold (FCX) as a potential
outperformer. The stock has been in a strong uptrend for more than two months, as copper and gold prices have been on the rise.Like many commodity stocks, FCX became one of the more crowded trades in mid-2008, as EVERYONE plunged money into the gold miners.
This, of course, led to more exaggerated selling once the trend was over, as the stock was bloated with crowd-followers.But recent option activity and other sentiment indicators suggest that the "crowd" has been squeezed out of FCX, making
it more likely to continue its upside momentum.Find out how to Close Out Option Trades for Triple-Digit Profits.
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Potash (POT)
By Michael Shulman
Corn prices exploded when the Bush administration decided they wanted farm states to vote Republican forever, and mandated ethanol
anywhere and everywhere. What happened? Skyrocketing demand for corn, skyrocketing demand for fertilizer to bring on new acreage and
get more output from existing acreage, and skyrocketing prices. At the same time, more people in China and other developing nations
moved up the food chain to meat, which meant more corn or other feed.Well, ethanol plants are closing every day, and the world is reducing high-end food consumption and reducing land under tillage.
Shorting Potash (POT) is a pure
play on falling demand for fertilizer. POT was a great bull stock that crashed, but is now up more than 50% from its low. Don’t jump
in now — the stock sliced through its 50-day moving average and may climb closer to its 200-day moving average before cracking.
But put it on your radar and be ready to pull the trigger with put options when the charts are a bit more favorable.
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Ivanhoe Mines Ltd. (IVN)
By Andrew Houghton and Nick Atkeson
Ivanhoe Mines Ltd. (IVN) is a gold
play with some extra bling. IVN is a Canadian-based international mining company with operations in Asia and the Asia-Pacific region.
It is primarily focused on mining gold. The kicker to this gold play is it is on the verge of receiving approval from the Mongolian
parliament to open up a giant gold mining operation in Mongolia called Oyu Tolgoi. The operation of the Mongolian project will add
a tremendous boost to this stock’s already strong rise.Open interest strongly favors the call options, and recent call buying concentrated in the IVN June 7.5 Calls (IVNFU)
implies the stock will see upside of at least $8.50 by the third Friday in June.Discover 10 Secrets of Successful Options Traders.
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Agrium Inc. (AGU)
By Toby Smith
Agrium Inc. (AGU) produces and markets
agricultural nutrients, industrial products and specialty products worldwide, and is a major retail supplier of agricultural products
and services in North and South AmericaAGU is attempting to acquire rival fertilizer maker CF Industries Holdings (CF),
and if it is successful, this will add 12%-15% to AGU’s earnings. AGU is cheap based on cash flow, and the acquisition of CF is not
yet priced into the stock.AGU is currently trading around $38, and my price target for the stock is $65.
Find out how to Make a Ton of Money Trading in a Volatile Market.
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United States Oil Fund LP (USO)
By Andrew Houghton and Nick Atkeson
The United States Oil Fund LP (USO)
tracks movement of light, sweet crude oil (West Texas Intermediate). USO is currently trading about where it was last December at
just above $30. With the 52-week price range running from $22.74 to $119.17, the risk/reward to buying oil here looks compelling.If you would like a little more fire in your tank, you might consider buying the January 2010 LEAPs.
The USO January 2010 40 Calls (KWWAN)
are currently priced at a little more than $2. If the U.S. dollar gets flattened, you should see fat profits from the rise of West Texas sweet
crude oil above the $43 price level.
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Noble Corp. (NE)
By Chris Johnson and Jon Lewis
"Drill, drill, drill" was the mantra for 2008, as soaring crude prices forced the market and government to jump on the
drilling bandwagon. This seemingly coerced everyone into loving companies with links to drilling … until oil prices plummeted, that
is.The wheels fell off the wagon in the second half of 2008, when crude tumbled to its recent lows. With the knee-jerk selling in the
oil sector having been overdone, Noble Corp. (NE)
is making technical moves that indicate a potential breakout to higher prices.We like the stock over the short term as it consolidates around $24.
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Steel Dynamics (STLD)
By Michael Shulman
I own three American-made SUVs, and they are not being replaced anytime soon. The automakers that are not taking hallucinogens are
forecasting North American auto demand five years from now to be lower than it is right now, so let’s look at steel. Technically,
steel is not a commodity — iron is — but what the heck, close enough.There are a lot of steel companies to short, but how about a small, domestic company that is heavily exposed to the auto industry and the
general economy?Take a look at Indiana-based Steel Dynamics (STLD).
The stock has fallen from $40 to $10 — but was $5 — and bounced with the Obama stimulus plan. In my view, it is a false
bounce. The stock is just under its 50-day moving average, and I believe it is running out of gas.Need help deciding what put option to buy? Read How to Pick the Right Put Option.
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Direxion Energy Bear 3X Shares (ERY)
By Toby Smith
With the rapid deceleration in commercial activity, massive job losses, the pullback in consumer spending and the lack of auto sales,
I don’t think we are done with oil and natural gas price declines.The Direxion Energy Bear 3X Shares (ERY)
seeks to replicate, net of expenses, 300% of the inverse daily performance of the Russell 1000 Energy Index. If oil prices decline,
this triple-short ETF could supercharge your portfolio.Buy under $34 with $50 target.
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