This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

How Far Down Can the Miners Go?

Stocks in this article: NEM GG ANV

The precipitous drop in Allied's share price included a exceedingly large volume spike. During a typical trading week for Allied, less than 5 million shares traded hands. Last week, more than 14 million shares traded, what one may cautiously consider a possible capitulation by the weak hands. If so, why did the selling continue through Monday, with another 4.8% drop?

It doesn't appear short-sellers are ramping up on shares, which I may even consider slightly bullish at this point (they have to cover at some point). Short interest data is always outdated; however, the data suggests the trend is lower, and short-sellers are covering.

If true, it's hard to picture a much more bullish indication other than seeing the actual price moving higher. Short-sellers are the smart money, and when they see the exit ramp, you should pay attention. Newmont and Goldcorp's short interest has fallen also, however, from a relative point of view, Allied's short interest is falling fastest and most clearly.

I believe the shorts buying back borrowed shares are illuminating the tunnel to profits. If they want to buy shares, maybe it's time to look for opportunity. One way to gain exposure while lowering your risks is through options.

Instead of buying the shares for about $12 a share, selling put options will allow you to capture some of the elevated fear premium currently priced into Allied. One idea is to sell the May $12.50 strike put for $1.40 or more. Your total risk is reduced from $11.85 a share, down to $11.40.

If Allied's shares move higher to above the strike price, the entire option premium is collected and gained. If the shares move lower and are put to you, the cost basis is $11.40, and they can either be liquidated or call options can be sold against them, further lowering your cost basis.

If the shares bottom, but stay in a narrow range, you still profit. This is one of my favorite reasons for writing options. You don't need the price to move in your direction. As long as the price doesn't continue to go against you, you profit. If the price does move in your favor by only 6% by the time the contracts expire, your profit is more than 12%.

Disclosure: The author holds no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

2 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs