Last week's commodity pullback sent most investors scrambling for cover -- traders with long positions quickly sold off their contracts, while the options market saw a mad dash to bet on the various companies being crushed.
But while everyone else raced to cover their backsides, a few contrarians were banking on an upside, jumping on the chance to turn a profit off depressed commodity prices...
A strong faction of hedge fund managers agree that the dip in commodities was a correction, and not reflective of any fundamental change in the market.
Excessive speculation may have pushed prices to "castles in the sky" levels, but many are confident that bearishness around commodities will likely reverse.
Angelos Damaskos of Junior Oils Trust and the Junior Gold Trust is "still quite bullish medium term, especially if the developed economy starts growing, and if demand from Asia continues to be strong, we could easily be in a situation where demand outstrips supply."
For Colin O'Shea, head of commodities, Hermes, the sell-off was a blessing in disguise: "No one wanted commodities to rise too fast and to constrain GDP growth."
And according to Christopher Wheaton of Allianz RCM Energy Fund, the commodities pullback is a "wobble," reflecting a "healthy reassessment of views."
We compiled a list of commodity stocks that have seen a sharp drop in put/call ratios over the last two weeks, where call options are outpacing puts.
When a trader buys a call option, he's expecting the price of the underlying stock to rise in the future. If, on the other hand, he buys a put contract, he's betting on a stock decline.
So a decreasing put/call ratio may be a signal that options traders are positioning for rebounds in these names (i.e., the number of call option contracts are growing faster than put option contracts).
It's hard to say how long it will take for the commodities market to recover from last week's plunge. But if you believe that the pullback in commodities is temporary, this list might offer an interesting starting point.
Here's a list of commodity stocks that have seen a sharp decrease in the put/call ratio over the last two weeks. Options traders think these companies are ready for a rebound -- do you? (To access free, interactive tools to analyze these ideas, click here.)
List sorted by the change in the company's put/call ratio over the last two weeks.
1. Continental Resources
2. Cimarex Energy
3. Whiting Petroleum
4. Ivanhoe Mines
5. Titanium Metals
6. Denbury Resources
7. Teck Resources
8. Forest Oil
10. New Gold
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen does not own shares of any companies mentioned.
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