Having missed out recently in our attempt to purchase call options on Kinross Gold Corporation we managed to bag a few today. We bought the JAN09 series at a strike price of $20.00 for an average of $2.68.
This trade will be funded from the ‘opportunity cash’ that forms part of our trading account. Kinross we believe is undervalued at the moment and as we can see from the chart the stock price is now below the 200dma and the technical indicators suggest that this stock is now oversold.
By the year-end we anticipate that Kinross will be trading in excess of $25.00 so we should generate a reasonable profit for the trade.
However we are operating in a volatile environment and have decided to implement the following strategy. Having purchased these contracts we immediately placed a ‘Sell Order’ on them at $5.36 which is double what they have cost us. The rational behind this move is that we could experience a sudden, although short-lived spike, in both gold prices and the Kinross stock price. So now we do not need to watch it in a micro sense as the sale will be automatic if our asking price is met.
This trade fits with our criteria of buying a stock only when we believe it can return 100% within 12 months. We anticipate this call option doing this by January 2009. But, we wont be surprised if a spike closes this trade in the very near term.
We are also working on some interesting silver options so do try and stay in touch, as these trades will come thick and fast.
Have a great weekend. For us it’s up to Auckland for a reunion with some work buddies and off to see the All Blacks play England at rugby. Load up on England to win by 2 points, is our tip for the weekend!
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