By Jud Pyle, CFA, chief investment strategist for the Options News Network

One of the best performers since the November equities selloff has been the precious yellow metal of worth for generations, gold. Bullion prices have rallied from under $700 an ounce to nearly $980 as we stand today. Market uncertainty and flight to quality has pushed the market toward last year's all-time highs, now in sight at $1,040 an ounce.

With recent extreme bullish price action and raised 2009 price estimates from both Goldman Sachs and UBS, the market is trying to say it is not a matter of if, but when, the psychological $1,000 barrier will be broken on the upside again. Another potential bullish sign was identified by the Sidewinder report at

identified a large option spread in

Agnico-Eagle Mines

(AEM) - Get Report


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Looking at AEM, we see that an investor sold 16,000 of the Jan 2010-Jan 2011 40 strike put calendar spreads at a price of around $3.60. This means that the investor bought the January 2010 40 puts for a price around $5.67 and sold the January 2011 40 puts for $9.27.

One potential motivation for this trade is that the investor thinks that shares of AEM will be more volatile for the next 11 months than they will be in the year following that. In buying the Jan 2010 40 strike puts, the price of $5.67 vs. a stock price around $53.47 is an implied volatility of roughly 64. Meanwhile, the price of 9.27 in the Jan 2011 40 puts is an implied volatility of 61. Sounds like the investor is buying high and selling low, but if the shares of AEM are volatile in the near term, and then revert back to the way they moved in late 2007 and early 2008, then it might work.

Another reason that the investor may have sold this put spread is to express a bullish bias. If the stock stays above $40 between now and expiration in 2011, the investor collects the entire $3.60. The problem with this idea is that that is a long time from now. But a bullish view, plus a willingness to bet on a decline in volatility probably add up to enough reason for this investor to have sold this calendar spread.

Jud Pyle is the chief investment strategist for Options News Network ( and the portfolio manager of Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."