Goldcorp Inc. (NYSE: GG) hit a new 52-week high today as gold futures are up by more than $10 or 1.4% this morning with more and more investors getting into gold as a hedge against inflation and the recently shaky US dollar. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on GG.The stock has been surging over the past two months after drifting lower for much of the past year. GG opened this morning at $33.12. So far today the stock has hit a low of $32.98 and a high of $33.48. As of 11:05, GG is trading at $33.03, up $0.50 (1.5%). The chart for GG looks bullish and steady.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just 3 months as long as GG is above $25 at January expiration. Goldcorp would have to fall by more than 24% before we would start to lose money.
GG has been below $25 as recently as August, but has shown support around $30 recently. This trade could be risky if gold prices relax after a big run recently, but even if that happens, this position could be protected by support from the stock's 50 and 200-day moving averages, which are both around $26 and rising currently.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in GG.
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