Gold producer Kinross Gold (KGC) is soaring along with the price of the metal, with shares up 73% over the past year. One trader sees the stock taking a breather over the next two months.
That’s based on the July $8.00 puts. With 50 days until expiration, 4,779 contracts traded compared to a prior open interest of 109, for a 44-fold rise in volume on the trade. The buyer of the puts paid $0.35 to make the bearish bet.
Kinross shares recently traded for about $8.25, so they would need to drop about 3% for the option to move in-the-money. The stock is right at its 52-week high of $8.27.
Operationally, Kinross has had a reasonable year. Revenues and earnings are up nearly 20% each in the last 12 months. And shares still look attractively valued at 15 times earnings. But most of the price movement will be based on how gold prices move in the months ahead.
Action to take: Gold just had a recent pullback, which may take a few more weeks to play out. Interested investors can still build a small position on any down day for Kinross. At current prices, shares pay a 1.5% dividend.
For traders, the July $8 puts could see mid-double-digit returns or better on a pullback in the coming weeks. Going into the fall months, traders may see better strength in the gold market, so consider flipping profits on the short side to a long position.
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 company mentioned in this article.