Precious metals explorer and producer Silvercorp Metals (SVM) has rallied in recent weeks as gold and silver have jumped higher. One trader sees that trend continuing in the months ahead.
That’s based on the October $7.50 calls. With 191 days until expiration, 20,109 contracts traded compared to a prior open interest of 127, for a staggering 158-fold jump in volume on the trade. The buyer of the calls paid $0.18 to make the bullish bet.
Shares recently traded for just under $4, close to the 52-week high of $4.05, so they’d need to rally another $3.50, or about 88 percent, for the option to move in-the-money.
The metals company is performing well. Revenues dipped 1 percent in the past year, but earnings more than doubled with a 135 percent gain. And shares trade at about 16 times forward earnings.
Action to take: Investors who expect a further rally in precious metals will likely see a bigger percentage win with silver than with gold. And with mining stocks versus the metals themselves. That makes Silvercorp a worthwhile play for such a trend, and shares even yield 0.6 percent here.
For traders, the October $7.50 calls are aggressive, but inexpensive enough to deliver triple-digit gains even on a modest rally higher for precious metals from here. However, if the current rally stalls out, the position will likely be a losing one. So traders should look to take quick profits well before expiration.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.