Options Roadmap for Precious Metals Miner Sibanye Stillwater (SBSW)

To be completely blunt, precious metals miner Sibanye Stillwater (SBSW) has been a monstrous investment and I don’t mean that in the positive sense. Just in this short year alone, SBSW stock dropped more than 12% of equity value. In the past 52 weeks, shares succumbed to a 50% loss. Yikes!

Naturally, Barchart’s Technical Opinion indicator wasn’t too kind, rating SBSW stock an 88% strong sell. And if investors were looking for a turnaround signal, the aforementioned gauge wasn’t having any of it, noting that long-term metrics “fully support a continuation of the trend.”

Even if you didn’t use or didn’t agree with Barchart’s proprietary metrics, the core datapoints are as clear as daylight. For example, SBSW stock prints a 60-month beta of 1.69. Given that the underlying benchmark equities index is rated with a beta of 1, Sibanye Stillwater investors should be warned: you’re probably going to see serious volatility.

At the moment, the company offers an annual dividend yield of 6.64%. Shares are also priced at 0.49X trailing-year revenue and 0.56X book value. By a cursory glance, these stats suggest that SBSW stock could be undervalued. However, astute investors may regard these lowly figures as evidence of a value trap than anything positively noteworthy.

Still, contrarian speculators also have some reasons to be bullish on Sibanye. For a start, the company majority owns a lithium project in Finland. Second, inflation – while improving – remains elevated, cynically supporting the case of SBSW stock. Finally, palladium – which is used in combustion-powered vehicles’ catalyst converters – may have an extended lease on life.

With extreme winter weather in certain regions stranding electric-vehicle owners, many folks may be questioning the wisdom of going all-in regarding the EV pivot. As a result, SBSW stock enjoys some fundamental basis for speculation. If you want to engage its derivatives, here’s how to do it.

Tackle SBSW Stock Options with This Roadmap

When it comes to something like Sibanye Stillwater, it’s safe to assume the worst, in my opinion. Back in 2021, shares peaked at a weekly average price of $20.56. Since then – save for the occasional head fake – SBSW stock has plunged downward. With the price now under five bucks, even the most hardened speculators should consider protection.

What do I mean by that? In football terms, we’re going to run the classic I-formation run play, with the fullback plowing forward and attempting to provide a running lane for the halfback. It’s not a pretty tactic and we’re probably only going to grab a few yards. However, unlike a bootleg play, we run a lesser risk of getting tackled in the backfield.

However, with any market strategy, we must make some assumptions. In this case, I’m going to assume that the average analyst target of $5.67 – according to TipRanks – holds true, with the bonus that the $6 max-price target may materialize. Granted, the risk is always that Wall Street’s targets are complete nonsense. In that case, you must calculate yourself what an acceptable risk is to you.

However, based on Barchart’s unusual options activity screener for SBSW stock juxtaposed against the analysts’ price targets, three intriguing options stand out:

• 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.

Now, by the April expiration date, SBSW stock should hit $4.83 if the average analyst price target comes true. If so, the profit would be $7.83, as we would multiply the target price by 100 shares. If the high-side target lands, then the profit would be $13.33.

For the July call, the profit based on the average analyst target would be $30.08 and would hit $43.83 if the high-side estimate materializes. Finally, for the January call, we’re looking at a profit per option combo of $58.58 or $88.83, depending on whether the average or the high-side target is realized.

In these examples, the premium paid represents the fullback and we’re also playing for pure intrinsic value, not assuming any time value remaining. Given this “conservative” strategy, the July calls would make the most sense. By waiting until July, you could potentially net a profit of $30 per option. And you can buy multiple options to enhance your return potential.

While the January call offers the highest reward, the problem is that you’d have to wait until January. Time is money so the July call appears to make the most sense.

Bootleg if You Want To

Of course, if you really want to speculate, you could choose to go the bootleg route and play for time value or a combination of time and intrinsic value. This is a much riskier strategy because we don’t know what we’re dealing with. However, if the stars align, this approach should theoretically be much more profitable.

For example, if the most optimistic analyst is correct, SBSW stock should reach $5.22 in July. Therefore, buying the $5 July call outright – instead of the $2.50 call – would cost you $55 instead of $228. The thing is, if SBSW stock trends flat or goes lower, the option will likely have zero intrinsic value.

Suppose SBSW stock rises to $5 but subsequently stays flat. Your $5 call would be worthless at the expiration date and thus you would lose your $55. However, if you bought the $2.50 call and exercised it, you would profit $22.

That doesn’t mean the bootleg approach is completely useless. If you anticipate a binary proposition – either SBSW stock wins big or loses hard – then buying the $5 call would make the most sense. In this case, the worst-case scenario is losing $55 instead of $228. And few would want to exercise SBSW if it fell to say a dollar per share.

Ultimately, your pathway into Sibanye Stillwater depends on what strategy aligns with your thesis and your risk-reward profile.