By Jud Pyle, CFA, chief investment strategist for the Options News Network
Looking at the January 2010 17.5 strike calls in
, we find that they have traded 10,000 times so far today vs. current open interest of 448 for a price of around $1. What is interesting about this call activity is that most of the activity is from buyers of the options.
The majority of these options traded for $1 today. In order for these calls to be profitable at expiration, the stock needs to be higher than $18.50, which is the strike of the call, plus the premium that was paid for the calls. That price level is higher than shares of GFI have ever been in the last year.
Shares of GFI peaked at $16.40 back in March of 2008 and are currently trading around $10 after bottoming near $5.30 in October.
However, the investor does not need to wait until expiration to profit on these options, because as the stock goes higher, the options could go higher as well.
Options traders refer to this as the delta: meaning the amount that an option price should change for every one-dollar change in the price of the stock. The delta on these calls is approximately 30, so for every dollar that the stock rises, the options should go up 30 cents, holding all other factors unchanged.
The bullish case for GFI and other companies that mine gold is that the price that it costs them to get the gold out of the ground is much less than the price that that market will pay for it now. The price of gold has risen as fear has gripped other markets. But gold has struggled to break the psychologically important $1,000 level.
Jim Cramer today posted a video clip
on Cramer on Demand for
TV where he talked about some gold companies as potentially better ways to play gold than buying gold itself.
Bullish option activity like this call-buying does not mean that investors should run right out and buy shares in GFI. But it is worth noting that at least one investor is bullish enough to bet that there might be some more upside in the shares of this gold miner.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
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."