Gold producer Agnico Eagle Mines (AEM) is up about 9 percent over the past year, but has declined substantially from its 52-week highs in the spring. One trader sees shares posting a stronger rally through 2025.
That’s based on the January 2025 $75 calls. With 445 days until expiration, 5,001 contracts traded compared to a prior open interest of 243, for a 21-fold rise in volume on the trade. The buyer of the calls paid $1.50.
Agnico Eagle recently traded for about $47.50. Shares would need to rise $27.50, or about 58 percent, for the option to move in-the-money. That would also mean breaking through the stock’s 52-week high of $61.15.
Such a move is likely if there’s a massive rally in the price of gold. While the metal recently moved back to $2,000 per ounce, gold mining companies tend to sell off if prices plateau and don’t continue higher.
Agnico Eagle has done well profiting from the rise in gold, with earnings up 124 percent over the past year. Earnings are also up 13 percent.
Action to take: Shares look undervalued relative to gold’s current price, and should outperform gold if it rallies from here. Thanks to its strong profitability right now, shares yield about 3.3 percent.
For traders, the January 2025 calls have plenty of time to play out, and are inexpensive. While shares may not hit that price target, a sudden rally in gold could lead to high double-digit returns for the trade. If that happens, profits can be taken well before the options expire.
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.