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I’m getting very bullish on copper. In many major cities around the world, such Beijing or Mexico City, the smog is almost unbearable. According to my research, there are over 700,000 electric cars being used around the world, which is a pretty significant increase from just a couple of years ago, but it’s still only about 1% of the automobile population of the world.
I believe that by the year 2020, 7%-8% of the world’s cars will be electric and that 35% will be electric over the following 20 years. This is a dramatic trend, and it means we’re going to need a lot more copper. In traditional cars, there may be as little as 55 copper wires, but the next generation of cars — especially the electric ones — are going to require thousands of these copper wires.
I think this is a rare opportunity to get into the industrial commodities and base metals before the prices really start to rocket higher. Copper, in particular, has been so low for so long that a lot of mines have closed, so I think this is a great chance to get in near the bottom — and that’s what I’m recommending with this longer shot play on iPath Bloomberg Copper Subindex Total Return Sub-Index ETN (NYSEARCA:JJC) today:
Using a spread order, buy to open the JJC Dec. 15th $34 call and sell to open the JJC Dec. 15th $36 call for a net debit of about $0.45.
A debit spread is simply a way to lower the cost of buying options, as the option that you sell to open (short) helps offset the cost of the option that you buy to open. Therefore, this call debit spread is a way to lower the cost of buying bullish call options. Many brokers will require the use of margin and/or a set amount of reserved capital to execute a debit spread; contact your broker directly for specific requirements.
I recommend that you exit the position if JJC shares get up to $36.
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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.