Search
  • Dani

Buying the Clean Energy Dip

The Clean energy sector was one of the best performers of 2020. The world pandemic made a major paradigm shift in how protecting the world using clean energy is something we can't ignore anymore and have to deal with now! (there will be no vaccine for global heating). Add to that the Biden administration positive support for this subject and BlackRock's declaration that they will allocate more money into renewable energies and we got a 4X in the Clean energy sector from Mar20 lows.


However, the end of year exponential move ended in Jan and since then we had about 33% correction in the Clean energy sector.

Part of the correction was due to rebalancing in the S&P clean energy Index last week that increased the number of stocks and pressured many of the existing components.

For example ORA stock was down from 125 to 75 (40%) as the sector ETFs (ICLN/TAN) had to sell about 250M$ due to its lower new weight in the Index.


Since we are consolidating at the support level for 1.5 month now, it might be a good time to buy the deep using options.

On Apr 22-23 there is a world leaders summit on climate, hosted by President Biden and with 40 world leaders, and it is reasonable to assume we will get some supporting statements in the following week.

https://www.state.gov/leaders-summit-on-climate/


Also 310 big companies including Apple, Google, Facebook, Walmart and many others, signed an open letter supporting actions for cleaner energy:

https://www.wemeanbusinesscoalition.org/press-release/businesses-investors-support-u-s-federal-climate-target-open-letter-president-biden/



So if we believe the the trigger for a new swing up is near, how can we use options to have a good R:R for this trade?

We can buy for example 50 C25 on ICLN for 1 month at 0.45$ (BE at 25.45 = 7.8% up). The risk is limited to 2250$ and we have the same exposure as holding 5000 shares above 25$ (125K) which is less than 2% risk.

Or Buying 50 c27 for 3 months at 0.5$ (2500$) and have 5000 shares exposure above 27$ (BE 27.5 = 16.5% up).

Given the previous highs going back to the 30$ levels will pay 10X on C25 and 6X on call27.




And what about ORA?

We can buy 20 C75 for one month at 3.85$ (7700$) which will give us the same exposure as holding 2000 shares above 75$ (150K) with BE point at 78.85 = 5.3% up in the next month. The stock was over 80 just yesterday, and we have another month to expiration.


Another trade idea could be to buy ETFs that are following the Carbon Emission markets.

If you didn't hear about it, its a futures market that was created to enable the governments (specially in the EU) to control the reduction of Carbon emission. After few failed attempts to build such market (due to over supply), it seems that they succeeded, and the market in structured in such a way that the supply is constantly reduced, which will create price to go up over time and help politicians to achieve their goals.

If you want to learn more on that, then I recommend you start this video from RealVision:

https://www.realvision.com/shows/live/videos/a-closer-look-at-the-carbon-emissions-trade-live-with-lawson-steele-and-raoul-pal


https://www.realvision.com/shows/the-interview/videos/carbon-emissions-the-new-frontier-of-energy-trading



Here there are no options, but you can look at it as an option on the success of the Carbon emission market (which is by design suppose to go up over time).


GO GREEN...



Disclaimer:

The following trade frame is an example for educational purpose only.

We are not an investment advisory services, nor are we registered investment advisors or broker-dealers and do not purport to tell or suggest which securities customers should buy or sell for themselves. Customers should always check with their licensed financial advisor and their tax advisor to determine the suitability of any investment.

It should not be assumed that the methods, techniques, or indicators presented in this example will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. We, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

30 views0 comments

Recent Posts

See All