Carnegie's US Steel (X) has risen to $24.32 from below $10 last year but it's only a $6.5Bn market cap. In a good year, US Steel can make $2Bn and 2021 should be a good year but steel plants are expensive to operate and, in a bad year, they can lose $1Bn – that's why they are called cyclicals but investors these days have no patience for cycles. X made $350M in Q1 and should do better as the year rolls on. I don't like chasing them but we can sell the 2023 $17 puts for $3.50, which nets us in for $13.50 and we'd love to own them down there so:
In our Earnings Portfolio, which has too much cash, let's make the following trade:
- Sell 10 X 2023 $17 puts for $3.50 ($3,500)
- Buy 20 2023 $20 calls for $9.50 ($19,000)
- Sell 20 2023 $30 calls for $6.20 ($12,400)
That's net $3,100 on the $20,000 spread that's $8,000 in the money to start and the upside potential is $16.900 (545%) if X is over $30 for us and that's the top of their rising channel so we'll also probably make a bit of income selling short calls at some point along the way.
That is how you stay ahead of inflation, with trade ideas that return 545% on cash! Our worst-case scenario is 1,000 shares of X are assigned to us at $17 ($17,000) plus whatever we lose on the spread, though the net of the spread is $6,600 so, as long as we stop it out with $3,100 or more, we net into X for $17, which is 30% below the current price. That's another great way to make sure you profit in the markets – never buy stocks for full price!
Rio Tinto (RIO) is another nice inlation hedge and we already sold 5 2023 $69.07 puts for $7 in our Long-Term Portfolio and now they are $7.50.
