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« High River Gold article update (by John Helmer) | Main | High River Gold Up 27.14% Today »
Friday
Jan082010

Agnico-Eagle Mines Limited Options Update

AEM Chart 09 Jan 2010.JPG
On the 4th November 2009 we bought a few Call Options on Agnico-Eagle Mines Limited (AEM) they were the JAN 2010 series at a strike price of $60.00, symbol AEMAL, for an average price of $5.10. We were of the opinion that Agnico was grossly undervalued at the time but the market didn't agree and these options, although they started well they soon fell out out of bed.

At one time they were up 81.46% and on reflection maybe we should have taken those profits as they appeared in quick time.

Fast forward to time now and we tracking the price at sub one dollar. So, firstly we looked at the chart again and as we can see there has been a positive crossover on the MACD and the RSI has improved but still has some room for further upward progress. Also note how AEM is back filling the gaps created by a drop in price. Now the stock price is heading north and today it closed at $59.38, so an increase of $0.70 or so will put these options into positive territory. We think that this can be achieved next week. This is not an investment it is a straight out bet for gamblers only. Anyway we bought at an average price of $0.90 just before the close today thus reducing our average price to $1.28, but we must repeat that it is a real gamble when trying to predict the price movement of a stock over such a very short time frame.

It now remains for Agnico to blow through the $60.00 level early next week, no doubt keeping us on our toes.


Any thoughts or comments on how we could do better are always welcome so please let us know.


Have a sparkling weekend.

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Reader Comments (4)

By Myra P. Saefong, MarketWatch

TOKYO (MarketWatch) -- Gold futures climbed by as much as $24 an ounce in electronic trade Monday morning in Asia to touch their strongest intraday level in more than a month, as a further weakness U.S. dollar and strong trade figures from China lured investors.

"We've seen carry-over selling in the U.S. dollar, which is helping to boost U.S.-dollar denominated commodity prices," said Ben Potter, a research analyst at IG Markets in Melbourne. "Gold is flying."

Gold Prices: So far so good, its now a case of fingers crossed.

January 10, 2010 | Unregistered CommenterGold Prices

Team,

Sold around 50% today at about a $1.00 as the market faded. There were opportunities to sell earlier at higher prices but we decided to wait. Lets see what tomorrow brings.

January 11, 2010 | Unregistered CommenterGold Prices

1) You did your homework. You were correct that AEM stock was undervalued. You should have bought AEM stock.

2) For naked call buying you need a tight trailing stop on the stock to get you out. You need to be right on both the timing of the purchase and the direction of the stock. Once the stock starts to reverse, get out.

3) You made a $5000 bet. If it became a $9000 bet, take $4000 out of the trade.

4) You got caught in the steep time value decay window of the option. When options go from 6-8 weeks down to 2-3 weeks they lose a lot of value.

5) You let a winning trade turn into a losing trade. This is a no-no. You should have gotten out when it traded back down to your cost basis.

Cheers from Chicago.

January 12, 2010 | Unregistered CommenterFrank M.

Frank,

Thanks for your comments they are much appreciated and correct. Certainly the use of stops would have protected us in this trade, got to hold our hands up we were just to sloppy and paid the price.

Is it still windy in Chicago?

January 12, 2010 | Unregistered CommenterGold Prices

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