Teaching Moments

Hey Influence Traders,

After a wild week and weekend, both the stock and crypto markets rebounded on Monday.

Ten of the eleven components of the S&P 500 saw gains.

Bitcoin also bounced back, helped in part by famed hedge fund manager Ray Dalio saying that he’d rather own BTC than U.S. Government debt.

DC Action

Speaking of the U.S. Government, the Tokyo Olympics have been thrown into further doubt by the State Department and CDC advising American citizens to avoid travel to Japan on Covid fears.

Wind Farms – Domestic vs. International

I like infrastructure plays.

I like green energy plays.

I like U.S.-based infrastructure and green energy companies — and a Danish company has shown why.

The stage has also been set for my Power Moves Portfolio trading partner Andrew “AG” Giovinazzi to make a solid steel play in Cleveland-Cliffs (Ticker: CLF).

As I’ve noted on several occasions, General Electric (Ticker: GE) is going to benefit from the Vineyard Wind Project off the East Coast. (Other domestic providers stand to benefit from widespread infrastructure spending, as well.)

But is offshore wind farming a good business?

One of the largest global wind farm operators is Denmark’s Orsted (Ticker: ORSTED), which is not delivering for shareholders.

Because of the way it installs its turbines into the seabed, multiple ORSTED wind farms are suffering from cable damage — and that has significantly impacted first-quarter earnings.

Word on the streets of Denmark (yes, in addition to Wall Street and K Street, I have contacts among the Danes, too) is that ORSTED was trying to cut installation costs.

You can anticipate much greate regulatory scrutiny of Vineyard Wind, the first large scale US project. 

Setting up CLF

Of course, turbines require steel — which means opportunity for you.

I’ll quickly walk through how AG puts on a steel trade …

      • In our strategy sessions, Andrew noted that CLF was once an industry darling that is bouncing back — and that the COVID recovery trade is still on the move with volatility priced relatively low.
      • He likes CLF because it has suffered a drop from recent highs, which gives us a good entry point. AG also likes to work below the market and he sees the 4,200 area as a short-term barrier. 
      • Finally, AG’s looking for a trade that will work in a see-saw market and gives us the chance for great upside as the summer moves along.

10-year candlestick chart of Cleveland-Cliffs

Note where CLF is right now — even for the year. The big inflation trade has pulled back some, so the diagonal spread is great for a bounce back. This is  similar to what we used for Freeport-McMoRan (Ticker: FCX) and Ford (Ticker: F), and works well when we only want a 20 delta trade with positive decay. This way, Andrew gets to sell another call after June expiration.

He is buying the CLF June 18 17.5-strike and July 16 15-strike calls for a $2.20 debit. That’s selling the CLF June 18 17.5s and buying the CLF July 16 15s.

Managing this trade gives us a call to buy back the short CLF June 18 17.5s and set up for a run on the CLF July 16 15 calls.

I love learning from AG!

Questions or comments? Drop them below … 

Cutting Through the Noise for You.

Frank

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