Unusual Options Activity: Yamana Gold (AUY)

Shares of Yamana Gold (AUY) are up 2 percent over the past year, even as gold prices have slid to a two-year low. One trader sees a potential for shares to trend even higher in the coming weeks.

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  • That’s based on the November $4.50 calls. With 51 days until expiration, 4,495 contracts traded compared to a prior open interest of 111, for a 41-fold rise in volume on the trade. The buyer of the calls paid $0.16 to make the bet.

    Shares last traded around $4.00, so they’d need to rise about $0.50, or 12.5 percent, for the option to move in-the-money.

    Some investors have been moving to gold now as inflation has been more persistent than originally thought. However, gold prices have been moving down in dollar terms as the US dollar has considerably strengthened in recent months.

    Action to take: A move of dollar weakness could cause a pop in gold prices and gold stocks. Trading at 17 times earnings, Yamana is a mid-sized player that’s attractively valued in the $4.00 range. Plus, shares yield about 3 percent at today’s prices.

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  • For traders, the option is inexpensively priced for a move higher in the coming weeks. If such a move happens, the options could deliver high-double or even low-triple-digit gains. If not, however, the option is inexpensive enough that a total loss wouldn’t be a huge deal.


    Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.