Goldcorp Inc. (NYSE: GG) shares are trading higher this morning as U.S. gold futures for December delivery are up 2% or $16.50, at $815.50 per ounce at last check. A weaker dollar has made gold cheaper for other currency holders, which can lift bullion demand and therefore prices. Gold is also seen as a hedge against oil-led inflation, which could be why prices are higher today after a few days of cooling off. 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.After declining for most of the early part of 2007 and hitting a one-year low of $21.00 in August, GG rose sharply in the late summer to hit its 52-week high of $38.11 last week, but the stock has declined since then. GG opened this morning at $34.50. So far today the stock has hit a low of $33.55 and a high of $34.66. As of 11:15, GG is trading at $33.60, up $0.20 (0.6%). 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 a 4.2% return in just 2 months as long as GG is above $25 at January expiration. Goldcorp would have to fall by more than 25% before we would start to lose money. Learn more about this type of trade here.
GG hasn't been below $25 since September and has shown support around $32 recently. This trade could be risky if gold prices stop moving higher and speculators start to take profits, but even if that happens, this position could be protected by support the stock formed around $30 in September and October.
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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