RE:Looking pretty safe hereNow this is a first for me - I have now read something in an annon internet chat forum and thought... 'Bang on, this guys got a clear insight I missed, and I am under-exposed to RFP options, and let's go throw another $10k into 'em." $10k deployed on another 2800 call options for RFP. I've already got maybe 10,000 of em.
Great post. WEF has closer to a billion feet, so a more optimistic case yet.
That said I'm shocked at the fact (1) RFP is both at a 66% discount to 2018. WEF is close, at a 57% discount to their 2018 high. I am confident that a reversion to the mean is likely, attainable, and conservative given my buddies trading lumber are over US $1200 for commodity tallies. Futures is not there yet lol. In any event I can confidently say we'll blow 2018 out of the water, just not sure by how much.
So to your point I just bought RFP calls, with the new $10k being for Apirl 2021. In the money at a $3.00 strike, I paid $3.60. So my "breakeven" for RFP is $6.60 in April 2020. That's following the Q4-2020 news, on top of Q3-2020 both of which will be historic. I can say that fairly for Q3-2020 as it's in the bag. Q4-2020 will also be at least a $700/mfbm quarter.
So RFP wins the day for me on shockingly, irresponsibly mispriced call options and greater discount.
There is a leverage item you mentioned too. What if valuation metrics stay low? To some degree I dont care as my perspective is that the firms carrying debt will convert that to market cap as debt is wiped out, I have more faith in this process than I do with the less leveraged firms who may do dumb stuff like bad M&A. I killed it with Tembec using this type of "path forward from too much debt" visioning.
So WEF has some debt, $200M or so, and that'll be a win when paid back. But RFP, over the next two quarters, assuming super conservative attained pricing of $750/mfbm lumber (keep in mind one quarter is in the bag at north of this and the one we're selling into now is like $950+), RFP will take it's 2.4 billion feet, 1/2 of that for the Q3 and Q4 numbers, so 1,200,000 MFBM at a margin of $500, and that's $600 million in lumber earnings (USD). It's literally enough to wipe out their CAD $700M debt, and there's only 80M shares, so that's enough to add $8.75 per share before my calls expire in April 2021.
So, that's my viewpoint on why I think the Kamikaze market marker for RFP (no options for WEF) is our new best buddy after J Powell and the zero rates for 5 years.
Excellent and thought provoking post though, thank you for the wider perspective. Usually it's just lumber guys like me haggling over which mill has the best board edger. Good luck.