NEM: Mining a Speculative Position
For fiscal year 2012 cosensus expects NEM to earn $5.44 per share, a 17% improvement over that of the expected 2011 performance. NEM represents solid growth with progressive management at its helm, but lacks are believers. I have traded NEM when its P/E was 30X-50X, so currently at 11X forward and earnings growth at 17% assumed rate of growth for 2012, this attracts my attention.
NEM's management is some of the best in the business as it has grown the market cap valuation to over $30 billion. The stock hit its all-time high of $72.42 in early November of 2011, a wild ride of a year for many stocks as well as gold!
The most important thing when trading gold mining names is that first they are a stock, and second their eventual valuation will be based on the underlying commodity. Many stocks today are economically performing well, but to not get their total "due" in this current stock market environment. Thus the rule of don't fight the tape must be adhered to with NEM or any other stock for that matter!
Let's review the charts and fundamental case with Jill and Scott:
What does make options trader/speculative sense is to use an in-the-money calendar call spread for NEM where the nearer month is sold short and the outer month is the long side. The risk is 100% controlled, that risk being the premium paid for the spread. This allows for time and price movement for NEM, possibly timed well enough to catch a bull cycle by summer.
This trade is high in risk because premium is being paid to own the spread as well as the shorted side of the spread being already in-the-money! You must understand these risks. This trade is medium-to-high in reward potential because the hedge for the long side is the nearer-term expiring call sold short. That call could expire near, if not, totally worthless. Should that occur the long side of the spread will become a naked long call with all the benefits that such a position offers. That call could then be possibly in position for NEM to move into a bull cycle.
Trades: Sell to open 3 NEM March 57.5 calls at $3.00 points and buy to open 3 NEM June 57.5 calls for $4.80.
The total risk for the spread is the premium paid, or $1.80.
On Wednesday, February 22 at 6pm EST, Dan Passarelli is hosting a FREE webinar dedicated to Exit Strategies. CLICK HERE FOR INVITE AND TO REGISTER. If you have already RSVPd, there is no reason to send another email.
OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits
T3Live can be followed on Twitter at twitter.com/_t3Live_
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts
More than 30 investing pros with skin in the game give you actionable insight and investment ideas.