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  • Options on Vertex Energy Inc. shares: upside potential 214% on refinery takeover
Max Manturov

Max Manturov

Head of investment research regulated by CySec 08.02.2022

Options on Vertex Energy Inc. shares: upside potential 214% on refinery takeover

Ticker: VTNR.US
Current price of the underlying asset: $5.11
Target price of the underlying: $13
Buy through options:
CALL: Strike: 7.5, Maturity:15/07/2022
PUT: Strike: 2.5, Maturity:15/07/2022
Entry Prices: CALL: $1.25, PUT: $0.50
Upside potential on options: 214%
Maximum possible loss on options: 100%
Time horizon: 6 months

The company

Vertex Energy Inc. (VTNR.US) is an environmental services company. It recycles industrial waste streams and non-standard commercial chemicals. The focus is on recycling used motor oil and other by-products.

What's the idea?

Earn options on Vertex Energy Inc. shares in light of the impending takeover of the refinery (a subsidiary of the Shell giant). This is a necessary measure necessary to reduce carbon emissions and also to meet the ESG standards put forward.


Buy Vertex Energy Inc. Shares >>

Why might Vertex Energy Inc's shares rise?

On the 26th of May 2021, news broke that Vertex would acquire 100% of Mobile Chemical LP's refinery. The price of the asset has since risen significantly and reached a high of $14.20 on the 30th of June 2021. Due to the difficulty in funding the project, the price sank to the $4-6 range.

The CEO of the company assures that the deal will be closed soon. He does not see any barriers to making the takeover happen.

The company has already posted new vacancies on Indeed (a US Headhunter) related to the yet-to-be-acquired institution. This has once again confirmed management's confidence in closing the deal.

If the deal is completed successfully, the price will once again accelerate its rise to previous highs. Thus, analysts at Credit Suisse expect the price to rise to $13 with Outperform status. In addition, 26% of the stock's free float is on the short side. If there is positive news, the stock will start to be bought back by short sellers, which could well trigger a so-called short-squeeze (a rapid rise in the share price).

Why might Vertex Energy Inc. shares fall?

The deal may not close, and the price will move back into the $1-2 per share range.

The company's previous investors were left with dilutive instruments - options, warrants, additional shares and convertible preference shares. All of these could be traded on the open market at a profit for their holders. This, in turn, could trigger a fall in the price.

Why price direction does not play a key role in making money?

In the next six months, the share price will either rise to $13 or return to the $1-2 range that preceded the news of the merger. It is possible to buy stock, but the idea is more efficient through the options market: to do so, one must buy 15 Jul 2022 Call options with a 7.5 strike, as well as 15 Jul 2022 Put options with a 2.5 strike.

Buying puts will not make the investor richer in the case of a decline and the idea is to protect them from losses. With a positive outcome, one can make $4 risking $1; with a negative outcome, the investor will not lose money.

Risks

Under this option structure, the invested funds could be completely lost if the price stays in the $2.5-7.5 per share range until the 15th of July 2022.

In December 2021, the investment firm Credit Suisse Group set a $13 price target for Vertex Energy shares.

How to take advantage of the idea?

  1. Buy shares at a price of $5.11.
  2. Allocate no more than 2% of your portfolio for purchase. To compile a balanced portfolio, you can use the recommendations of our analysts.
  3. Sell when the price reaches $13.

How to Buy Vertex Energy Inc.?

If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.

After opening an account, you can buy shares in either of the following ways:

Freedom24 Web Platform: In the Web Terminal section, type VTNR (Vertex Energy Inc. ticker in the NASDAQ) in the search box, and select Vertex Energy Inc. in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.

Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type VTNR (Vertex Energy Inc. ticker in the NASDAQ) and select Vertex Energy Inc. in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.


Buy Vertex Energy Inc. Shares >>


*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Europe Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance Europe Ltd. do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance Europe Ltd. and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.


  • Sources of information

    https://irdirect.net/vtnr

    https://www.indeed.com/

  • Recommendation evaluation methodology according to Market Research Terms of Use
    Freedom Finance analysts perform a three-stage analysis. They select a promising industry based on the latest news, statistics and industry-specific metrics. They assess the supply and demand situation and its future development dynamics. Industry’s investment attractiveness is mostly affected by the forecasted market growth rates; total addressable market, player concentration level and likeliness of a monopoly formation, as well as the level of regulation by various entities or associations.

    The assessment is followed by the comparative analysis based on the selected sample. The sample comprises companies with a market capitalization of over USD 1 billion, but there is space for exceptions (when the suitable level of liquidity for company’s securities is available on the stock exchange). The selected companies (peers) are being compared against each other based on multipliers (EV/S, EV/EBITDA, PE, P/FCF, P/B), revenue growth rates, marginality and profitability (operating income margin, net income margin, ROE, ROA), and business performance.

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    Based on all the data collected, the analysts determine the weighted forecasted figures of company’s growth rates and proposed business marginality, which are used to calculate the company’s multiplier-based estimated value. The said value enables setting the stock price target and stock value growth potential.

    The expected timing of the idea implementation is set depending on the current market situation, volatility level and available forecasting horizon for industry and company development. The forecasting period is normally set between 3 and 12 months.