Shares of gold producer Agnico Eagle Mines (AEM) have been volatile with gold prices in the past year. They’re now down 20 percent. And one trader sees the potential for a further decline in the coming weeks.
That’s based on the October $35 puts. With 36 days until expiration, 4,011 contracts traded compared to a prior open interest of 250, for a 16-fold rise in volume on the trade. The buyer of the puts paid $3.50 to get in.
Shares recently traded around $43, making the options already about $2.00 in-the-money. Shares have a 52-week low of $38.
While gold prices have been range-trading for nearly two years now, gold mining companies have been profitable. Agnico Eagle has seen a 60 percent rise in revenue and 40 percent rise in earnings in the past year. But the share price tends to trade higher or lower depending on the movement in the price of gold.
Action to take: Gold could be a strong performer here, as inflation continues to remain more persistent than many have thought. Investors may want to consider shares here and on any further dip. The stock also yields 3.6 percent right now.
For traders, the put option play makes the most sense for the short-term, as markets look ready to retest their June lows. Traders should look for mid-double-digit profits here, given the short-time left on the trade.
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.