Shares of gold producer Agnico Eagles Mines (AEM) are off by over 30 percent in the past year, as gold prices have been lackluster. One trader, however, sees the possibility for a massive rally in the coming months.
That’s based on the January 2024 $80 calls. With 611 days until expiration, 8,846 contracts traded hands compared to an open interest of 133, for a 67-fold increase in volume on the trade. The buyer of the calls paid $3.90.
Shares last traded around $52, so they would need to rise over $28, or 54 percent, for the options to move in-the-money. That would also see shares rise past their 52-week high of just under $75.
Earnings are down 19 percent compared to 2020’s numbers, but revenue is up 42 percent as gold prices have stagnated, but still stayed at elevated levels as inflation has remained high.
Action to take: For those concerned about inflation, or even a recession followed by another round of easy-money policies, gold still looks attractive here. It’s modestly off its 2020 highs, but is well off of its inflation-adjusted highs, so has room to run further. And Agnico Eagle is a dividend growth stock now, with a current yield closing in on 3.2 percent.
For traders, the January 2024 calls have plenty of time to play out. And they’re inexpensive enough that they could deliver triple-digit returns at some point well before expiration. Traders might want to consider adding such a stake in the coming weeks, with the understanding that gold may dip a bit further before a catalyst sets off a rally.
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.