Take a look at lumber futures. You will see on May 7th it was trading at $1686. Not the peak. Today trading at $580. This is basically at the July 2020 level. Inflation in lumber is transitory.
Fortunately for us it takes around 90 days for the impact to be felt at the lumber mills and retail outlets. So if you go buy lumber today at home depot you are still paying at the $1686 price. However this is just starting to change.
WOOD is a lumber ETF. On May 7tn the price was $96.75. Today at $87.16. One year ago trading at $60.00. You can see the etf has dropped but nowhere near the percentage lumber futures are dropping. That is the opportunity.
The top 3 holdings on wood:
Rayonier RYN. On may 7th was at $37.88. Today at $37.42. One year ago at $27.78.
Weyerhaeuser. WY. . In May at $40. Today at $34.53. A year ago at 26.11
WEST FRAZER TIMBER. WFG. In May at $86.48. Now at $71. Year ago at $44.56.
As you can see all these companies are trading at least 25 percent higher than they were a year ago. WOOD is trading at least 30 percent higher.
Lumber companies are all getting ready to report earnings. Their numbers will look excellent. However based on the price of lumber dropping we will see them have to give guidance on future earnings. No way can these companies duplicate the record 2nd quarter. I expect to see downgrades and profit taking. Thus causing the price to dramatically drop.
Position. PUTS on WOOD. November expiration. 90 strike. Premiums at $5.00.
Predict that WOOD drops to at least $70.00. Looking to make 3 to 4x my investment.
Jump To The Original Source