From paleolithic humans mining hematite over 40,000 years ago to rare earth elements, mining is among the oldest industries upon which some of the newest sectors heavily depend. Today, I’m focusing my attention on minerals used in modern technology and presenting a way to use options to play a lithium miner. The strategy gives a lower-risk way to get somewhat long this beaten-up miner without going all-in, and generating some income in the process. Lithium is used, as the name suggests, in lithium-ion batteries which are crucial for portable electronics, energy storage, and electric vehicles. Charlotte, NC-based Albemarle Corporation , ticker (ALB) is one of the largest producers in the world, and counts the major automakers among its largest customers. Most of the major automakers have struggled to profit from selling EVs, and the most notable U.S. success story, Tesla, reported a 9% drop in Q1 revenue last week, its largest percentage decline since 2012. While I believe Tesla will, as Elon Musk stated on the call, produce a lower-priced vehicle and that sales will ultimately recover, it’s clear that the EV market is experiencing a bit of a reset. It stands to reason that their suppliers will too. Albemarle does not only supply the automakers, in fact, Volkswagen, Stellantis, BMW, Mercedes, Hyundai, GM, Ford, Toyota, Tesla, Kia, Renault, and Nissan combined represent only about 10% of the company’s revenues. But other segments are also under some pressure as the price of lithium itself suggests. Battery grade lithium carbonate has declined 65% since June of 2023. Albemarle which hit its 2023 highs about a month later than the commodity, in July of 2023 has fallen by 52% since then. ALB 1Y mountain Albermarle, 1 year Albemarle is stuck between near-term lithium demand weakness and longer-term positive trends, between a seemingly cheap valuation and mixed technicals. The trade The company is now at an attractive entry point, but the pressures it faces will persist for a couple more quarters. Combined with understandably elevated options premiums this could set as a spot to begin entering a partial position, with some options overlays. Rather than allocating fully to the position, for example, if one would typically allocate 5% or 1/20th of a portfolio for a full-sized position in a portfolio, then instead allocate half that amount — say 2.5% to the long position — in ALB, and then sell a strangle on the position such as the May 31st month-end…
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