Strategies to Navigate Sibanye Stillwater’s Stock Options (SBSW) Strategies to Navigate Sibanye Stillwater’s Stock Options (SBSW)

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It’s no secret that precious metals miner Sibanye Stillwater (SBSW) has been more of a horror show than a boon for investors. Over the past year, SBSW stock has witnessed a disheartening 12% erosion in equity value. And if that wasn’t bad enough, in the preceding 52 weeks, shares suffered a 50% freefall. Ouch!

Adding insult to injury, Barchart’s Technical Opinion indicator has delivered a damning 88% strong sell rating on SBSW stock. Furthermore, the long-term metrics seem to double down on the negativity, indicating “a continuation of the trend.”

For those who prefer to look outside the Barchart bubble, the stock seems to scream volatility. With a 60-month beta of 1.69, considerably higher than the benchmark equities index, Sibanye Stillwater investors should brace themselves for a rollercoaster ride.

Despite the gloom, there are glimmers of hope. SBSW stock offers an annual dividend yield of 6.64% and is priced at 0.49X trailing-year revenue and 0.56X book value. These figures may suggest that the stock is undervalued, but to the discerning investor, they could also signal a value trap.

Still, there are reasons for contrarian speculators to be optimistic about Sibanye. The company has a controlling stake in a lithium project in Finland, and persistent inflation could ironically favor SBSW stock. Moreover, the demand for palladium, an essential component in internal combustion engines, may continue to rise amidst questions about the electric vehicle (EV) pivot.

Given the fundamental basis for speculation surrounding SBSW stock, investors may be inclined to explore its derivatives. And for those intrepid souls willing to take the plunge, here’s a detailed guide on how to navigate Sibanye Stillwater’s stock options.

How to Approach SBSW Stock Options

When dealing with Sibanye Stillwater, it’s prudent to prepare for the worst. In 2021, shares reached a weekly average price of $20.56, but have since plummeted. Now trading at just under five dollars, even the most adventurous speculators should consider protective measures.

So, what’s the play here? It’s akin to running a classic I-formation run play in football – the fullback barrels forward, aiming to provide some running room for the halfback. It’s not flashy, and the gains may be modest, but the risk of a loss is minimized.

Of course, any market strategy involves certain assumptions. In this case, we’ll assume that the average analyst target of $5.67, as per TipRanks, holds true, with a maximum price target of $6. Nonetheless, the risk remains that Wall Street’s targets could be entirely baseless, so it’s imperative that investors gauge their own acceptable level of risk.

Presented against the analysts’ price targets, three intriguing options emerge from Barchart’s unusual options activity screener for SBSW stock:

  • SBSW Apr 19 ’24 2.50 Call for a total option cost (including exercising) of $475.
  • SBSW Jul 19 ’24 2.50 Call for a total cost of $478.
  • SBSW Jan 17 ’25 2.50 Call for a total cost of $500.

If the average analyst price target materializes by the April expiration date, SBSW stock should reach $4.83, resulting in a profit of $7.83. If the high-side target is achieved, the profit would amount to $13.33.

For the July call, adhering to the average analyst target would yield a profit of $30.08, while hitting the high-side estimate would result in an impressive $43.83 profit. And for the January call, the potential for profit stands at a substantial $58.58 or an even more impressive $88.83, contingent upon the realization of the average or the high-side target, respectively.

In this instance, the premium paid represents the fullback, with the objective of playing for pure intrinsic value, without factoring in any remaining time value. Given this “conservative” strategy, the July calls appear to be the most rational choice. By biding your time until July, you could potentially net a profit of $30 per option, and purchase multiple options to enhance your return potential.

Although the January call offers a higher reward, it necessitates waiting until January. As the saying goes, time is money, so the July call appears to be the most pragmatic option.

An Alternative Approach

For those inclined towards speculation, an alternative route is to play the long game, banking on time value or a mix of time and intrinsic value. While inherently riskier, this strategy, if successful, promises potentially higher returns.

For instance, if the most optimistic analyst prediction transpires, SBSW stock should hit $5.22 in July. Consequently, acquiring the $5 July call outright – instead of the $2.50 call – would entail an investment of $55 instead of $228. However, in the event that SBSW stock remains unchanged or declines, the option would likely possess zero intrinsic value.

If SBSW stock rises to $5 but subsequently remains stagnant, the $5 call would expire worthless, resulting in a loss of $55. Conversely, if you opted for the $2.50 call and exercised it, you would profit $22.

While the bootleg approach isn’t without merit, it largely hinges on a binary proposition – either a substantial win or a substantial loss. In such a scenario, opting for the $5 call makes more sense, as the worst-case scenario entails a $55 loss, compared to a potential loss of $228. After all, few would contemplate exercising SBSW if it were to plummet to, say, a dollar per share.

Ultimately, the pathway into Sibanye Stillwater depends on the strategy that aligns with an individual’s thesis and risk-reward profile.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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