More Insiders Buy Bunge Limited Shares
Last week I wrote about how Bunge Limited (NYSE: BG) was seeing early signs of insider buying.
While the market has been trending lower, Bunge has been moving steadily higher. There’s been no news from the company itself, but there has been big news in the market.
Following the insider buys that I wrote about, there have been even bigger buys. This type of cluster buying (buying by a variety of insiders at higher prices, lower prices and market prices) is one of the clearest indicators that it’s time for us to buy.
The time frame for a trade based off insider buying is usually at least six months, considering that insiders generally can’t sell for at least six months after buying their own shares.
That means a short-term option is not the best way to play a case like this. And buying the stock might not produce the best returns, either.
That’s where LEAPs come in.
LEAP options can expire in one to three years. They are the perfect vehicle to play an expensive stock that we expect to move higher over time, but not necessarily right away.
If you believe, as I do, that Bunge will eventually head higher, then it pays to enter into a calendar spread trade. That’s when you buy one call option and sell another call option with a higher strike price against it. In a calendar spread trade, each option has a different expiration, so the one you buy has a longer expiration than the one you sell.
If the shares move lower or stay the same, then the option you sold will expire worthless, leaving you with the profit you got from selling it. Then you’d still have another option that would allow you to benefit from the longer expiration period.
It’s the options version of covered call selling, a strategy that many investors use to generate income or lower their cost basis.
Insiders aren’t always right. But as you can see from the image below, they’re throwing some serious money at this play and buying the shares on the open market just like any investor would.
Action Plan: When stocks like Bunge Limited are in an oversold situation and trading at multiyear lows, it doesn’t take much to light a fire under them. These particular insiders might be that first match. You can follow Bunge Limited’s progress and even participate in the unique calendar spread play we’re doing in The War Room right now!