On 8th October 2009 we purchased some Call Options on Randgold Resources Limited (GOLD) they are the December 2009 series with a strike price of $80.00 (GUDLP) and we paid an average of $4.70 per contract for them. Todays trading range closed between $6.80 and $7.00per contract.
Randgold Resources Limited has performed reasonably well so far and managed to close at $83.82 today putting this trade nicely into the money. Every dollar Randgold gains from here should see a corresponding rise in the value of these options minus the cost of the deterioration of the time premium. The option expiry date is the 19th December 2009 so stay awake or place a sell order now at a price you are happy with.
Gold is currently holding at $1141.10 and we are of the belief that it can still go higher from here despite the detractors.
The dollar is trying hard to get a grip and stay above the '75' level so keep an eye on it. The Chinese may move to purchase the remaining 200 tonnes of IMF gold which would give gold another boost in the short term. Also keep an eye on the DOW which at 10,437 as a sell off lies ahead of us but not just yet. In the medium term a broader market sell off could hit the mining stocks so it is something to keep in mind.
Taking a quick peak at the chart at the time of making the purchase we noted that:
Randgold is trading at $74.00 and is close to its previous high of $76.08, if it can get above its previous high then it too is in unchartered waters and could move higher quickly. The other point of note is that the MACD is very close to making a golden crossover, where the black line crosses the red line in an upward motion, which is usually very positive for the stock.
On the downside we would prefer the technical indicators to be starting from a lower point on the chart to feel more comfortable with this trade, but it is difficult to find the perfect set up. We also need to be weary of the gap that has opened up between the stock price and the 200dma, again we would prefer this gap to be lot smaller.
Since then the MACD has experienced a golden crossover and it has been positive for the stock. However the stock price is leaving the 200dma well behind, should the stock price hit $90.00 then it will be 50% higher than this moving average suggesting that it is a little too far too fast.
As always go gently as options trading is highly speculative and dangerous to our financial health, but for now enjoy the ride and keep smiling.
Any thoughts or comments on how we could do better are always welcome so please let us know.
Have a sparkling day.
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