Newmont Mining Corp. (NYSE: NEM) stock is soaring to a new 52-week high today after the company's third quarter earnings release. Profit in the quarter doubled to $0.88 per share, obliterating analyst expectations of $0.25 per share profits. Even though gold futures are relatively flat today, prices have been rising recently, lifting the outlook for NEM. 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 NEM.
After hitting a one year low of $48.42 in the summer, the stock has risen quite a bit, settling in above the $45 mark with recent resistance around $48 until today. NEM opened this morning at $47.40. So far today the stock has hit a low of $47.14 and a high of $50.63. As of 10:45, NEM is trading at $50.53, up $4.09 (8.8%). The chart for NEM looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $42.50 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 a 5.3% return in just 7 weeks as long as NEM is above $42.50 at December expiration. Newmont would have to fall by more than 15% before we would start to lose money.
NEM hasn't been below $42.50 by more than a few cents since gold spiked higher in early September and has shown support around $44.50 recently. This trade could be risky if inflation fears ease and precious metals relax in price, but even if it happens, this position could be protected by strong support it has found around $45, plus the stock's 200-day moving average, which is currently at $43 and rising.
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 NEM.
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