Shares of gold exploration and production company Alamos Gold Inc (AGI) are trading flat over the past year. One trader sees the potential for a big drop in the coming weeks.
That’s based on the October 21 $7.50 puts. With 52 days until expiration, 5,257 contracts traded compared to a prior open interest of 187, for a 28-fold rise in volume on the trade. The buyer of the puts paid $0.53 to make the bet.
The stock last traded at $7.60, making the option about $0.10 in-the-money right now. Shares are about $1.00 of their 52-week low of $6.51.
Gold stocks tend to move with the price of gold. Gold prices are under pressure as the US dollar remains strong in international trade, and as interest rates are set to remain high to combat inflation.
Action to take: There’s likely some further weakness in prices in the weeks ahead. Investors who like gold mining stocks can potentially get a cheaper price in the coming months. Shares do yield about 1.3 percent right now, but on a drop could pay out a bit more.
For traders, the October put options should deliver mid-to-high double-digit returns in the coming weeks. Look for a strong down day for shares to take a quick profit on this trade.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.