Unusual Options Activity: IAMGOLD (IAG)

Gold prices have broken to new all-time highs of $2,150 per ounce this week. One trader is betting the trend will continue, which will benefit gold stocks such as IAMGOLD (IAG).

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  • That’s based on the September $5 calls. With 195 days until expiration, 5,509 contracts traded compared to a prior open interest of 120, for a 46-fold rise volume on the trade. The buyer of the calls paid $0.15 to make the bullish bet.

    IAG shares recently traded for about $3. So shares would need to rise another $2, or 66 percent, for the option to move in-the-money.

    Such a move is possible for a gold mining stock if gold prices soar from here now that the metal has reached new highs. IAG has been trending higher, and is now slightly off its 52-week high of $3.34.

    While IAG is still unprofitable, rising gold prices have helped revenues rise by 43.6 percent in the past year. And shares are still inexpensive at 15 times earnings.

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  • Action to take: Investors interested in gold rising from here could do better with gold mining stocks, including IAG. At present, shares do not pay a dividend.

    For traders, the September $5 calls are an inexpensive way to play gold trending higher in the next few months. The options can see triple-digit returns, although it may take a bigger rally higher in gold than what we’ve seen so far.


    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 company mentioned in this article.

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