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« Gold to hit $1,350 - $1,400 by late Spring - John Embry | Main | Leverage: Its Your Option »
Tuesday
Feb022010

Agnico-Eagle Mines Limited Options Update

AEM Chart 03 Feb 2010.JPG

On January 25th, 2010, we purchased more stock of Agnico-Eagle Mines Limited (AEM) at an average price of $53.24 and we also acquired a few Call Options and they are the MAY 2010 series at a strike price of $60.00, symbol AEMEL for which we paid a price of $2.85 per contract. At the close of trading in NYC today the last price for these Options was $3.10 so we finished in positive territory by about 9%.

If gold prices can continue to head north for a few more days then Agnico-Eagle could do well and these options should behave accordingly in a leveraged manner increasing our possible profits on the trade. Should this happen in the next day or so we will place a sell order with a 'stop' in order to lock in some of the profits and avoid a loss if the market moves against us.

Taking a quick look at the chart we can see the RSI has hit '30' and bounced off it, which is a good sign. The STO is heading north from a low level and a crossover on the MACD would be positive for AEM, in the short term.

On our silver-prices site we recently wrote the following:

Sticking our necks out we don’t expect to see the dollar go much higher than ‘80′ however as the broader market sells off the dollar strengthens. As a currency we think that its future is bleak, but the alternative currencies especially the Euro appear to be performing just as badly with problems in Greece and Spain grabbing the headlines. As currencies go its a race to the bottom with the occasional upward spike to keep us all on our toes.

Gold is still a 'dollar' play so keep at least one eye on it.


All the best.

Got a comment then please add it to this article, all opinions are welcome and appreciated.

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Reader Comments (16)

i am going to buy this thing at around 10 bucks

February 3, 2010 | Unregistered CommenterDi

Gents,
Bought the May $70 Calls at $0.95 per contract on January 28th...a little more conservative than your May $60 Calls.
Watching the greenback, along with a couple of other stock options.
Good Luck.

February 3, 2010 | Unregistered CommenterMark

Di,

Could you get a few for me while you are there?

Mark,

The $70.00 series is a lot cheaper but Agnico has to work harder to get there, good luck with them....

February 3, 2010 | Unregistered CommenterGold Prices

Dear gold prices,

I have a question in regard to your recent comments on AEM - posted 2/3/2010 9:16am.

I have pasted in below the comment I wanted to get further clarification from if possible.

Should this happen in the next day or so we will place a sell order with a ’stop’ in order to lock in some of the profits and avoid a loss if the market moves against us.

When you place a "sell order with a stop" - where do you place the stop i.e. 5% below the current price or do you use a closer stop?

Do you do the same with both the option and the stock?
Thanks

February 3, 2010 | Unregistered CommenterM

M,

We have decided to watch the stock for now but will post if and when we do place a stop.

For the option, its a difficult one due to the volatility of options, we could place a stop only to find the stock opens lower the next day and we are out, even though it recovers almost immediately.

Some traders will place at stop as soon as they make the purchase in order to protect themselves, at say 30% below the purchase price. We were hoping for a good day today and then we would place a stop with a small profit built in, but maybe thats a little too optimistic. It all depends on your aversion to risk etc, and we are all different in that respect. There is also the possibility of using a trailing stop say $0.40 below the current level, thats worth some consideration.

We will decide in the next day or so and post accordingly, but if you feel you need one now then by all means place one.

February 3, 2010 | Unregistered CommenterGold Prices

FYI

http://jsmineset.com/wp-content/uploads/2010/02/February0310Gold.pdf

Range-bound for the rest of the month to repair the damages done???

UBS has lowered Kinross price target. ELD.to may be take-over target? The rumors was on-going for years.

My favorite at this point is RBI.to. Price target raised recently. Good strength even during recent down-turn.

Bob, buying more HRG.to? Can't find your recent piece.

February 3, 2010 | Unregistered Commenterep

Gents,
you're right on both counts...being a newbie to options trading, this is my preferred way to trade, right now. I will exchange potentially high gains/losses for minimalized risk - hence, taking the further out $70 Calls.

For example - If I was to buy today I would look for the % gain potentially available from the May series. With the $70 trading at $1.15, a $5 move closer towards the price would equate to a $0.92 gain or $2.07 (or the $65 series) - an 80% gain ($0.92/$1.15). By comparison, looking at the May $65 Calls trading at $3 - if the price moves $5 closer towards the price, would equate to a $1.75 gain or $4.75 (or the $55 series) - a 58% gain ($1.75/$3.00). Being aware that time decay is ever present, this is the way I look at picking an available option and the potential it can return...I think it's called Gamma, not absolutely sure. If I'm wrong with this methodology, please let me know...best of luck!

February 3, 2010 | Unregistered CommenterMark

.....meant to say May $60 Calls trading at $3.00.

February 3, 2010 | Unregistered CommenterMark

Ep,

Thanks for the chart very much appreciated. Jim Sinclair is always worth a visit in our opinion.

HRG, no we have not bought recently, but we have posted some stuff on them, try putting HRG into the search bar at the bottom of the page it should bring up every mention of them.

February 3, 2010 | Unregistered CommenterGold Prices

Mark,

Thanks for your comments its good for all of us to get a 'feel' of just how other people are thinking and trading.

We plan to do a tad more on options trading probably sometime next week as the mail bag is full of questions!!!!!!!!!

Keep it simple though and understand the stock and how it responds in any given situation, still more next time.

February 3, 2010 | Unregistered CommenterGold Prices

To e.p, I realize that my words do not carry the weight that gold prices team but I wanted to share w/you a recent move on our part w/ HRG. We sold just under 400,000 shares at .92 US, and believe in the future of HRG enough that we re-invested the profit from our sale and purchased just over 500,000 shares at an avg. of .73 US. Initially we were contemplating using the profit to enter into AVR.V however even with the smaller share float how can you compare 55,000 oz. to 350,000 oz. at around the same price per share. Think about that for a moment, you have the oppurtunity to purchase a producer of 350,000 oz. for .71 cents. In my opinion you can't beat it, I dare you to try. However time will be the only true verdict, I may regret my decision in the future but I doubt it. Whatever you decide, I wish you success in all your endeavors

February 4, 2010 | Unregistered CommenterVincent

Just picked up the May 60 calls for 2.20 and put in the sell for 3.00. Next time it spikes over 3.00, I will harvest some profit.

I continue to like GOLD & AEM as both stock and option plays.

February 4, 2010 | Unregistered CommenterBC

BC,

Good luck with them, we obviously want them to work out for you.

February 4, 2010 | Unregistered CommenterGold Prices

I very much appreciate the work that you do at gold-prices. I research your suggestions. A number of times stock or options move up out of range while I am doing my homework. Other times like this I get them at a even better price. All in all it is likley a break even. I miss some and I get some at a better price.

However it underscores something that every one of us should be doing. Each of us should run the numbers ourselves. No matter how good the source of a suggestion, it is your money and each of us should work the numbers. You also provide multiple views and sources of information.

So, my hat is off to you for good job you do at the newsletter.

Thanks so much - BC

February 4, 2010 | Unregistered CommenterBC

BC,

Thanks very much for your kind words they are appreciated.

You are right on both counts, firstly do the work and secondly we do tend to go in a little early so an even better buying opportunity can come along later.

February 5, 2010 | Unregistered CommenterGold Prices

Team,

These Call Options bounced back today to gain 50% during the session, closing at bid $3.35 and ask $3.45 for a paper profit of about 17%.

February 5, 2010 | Unregistered CommenterGold Prices

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