Gold prices have been lackluster lately, but some traders see a further potential move higher in the gold mining space. That’s based on the call option activity in Yamana Gold (AUY).
The trade? The $4.50 calls expiring in March, just 30 days away. Over 3,600 contracts traded against a prior open interest of 140, for a 26-fold rise in volume. The trade is about $0.20 in-the-money already, given the current share price near $4.70.
The trader paid about $0.43 for the option.
- Insurance For Your Investments? The Answer...Options
Investors are reevaluating how to do things in 2021. With Options, a stock’s price can drop to zero, but you can never lose more than the option’s premium and you know the full amount at risk right from the get-go.
Options are the most dependable form of hedge, and this also makes them safer than stocks.
Following a pullback in shares along with the price of gold, this mining play is now up just 10 percent over the past year, lagging the overall stock market. With revenues up 20 percent and earnings up 600 percent over the same timeframe, however, any change in sentiment towards the gold space could send shares far higher.
Action to take: The in-the-money trade is inexpensive, and could offer high double to low triple-digit returns before expiration. With the short timeframe until expiration, it also has a high risk of expiring worthless, so traders may want to get in and use a tight stop loss.
Traders may also want to pay up for an option with a later strike date. Longer-term trends are favorable for gold prices and gold mining stocks, but may not play out in as short a timeframe as a month.