Newmont Mining Corp. (NYSE: NEM) stock is rising this morning, helped by positive movement in gold futures, which crept above $815 an ounce for February delivery, its strongest level since Nov 28. 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 $38.01 in August, the stock hit a one-year high of $56.35 in November. NEM opened this morning at $50.72. So far today the stock has hit a low of $50.49 and a high of $51.34. As of 11:05, NEM is trading at $51.17, up $1.14 (2.3%). The chart for NEM looks bullish but deteriorating, 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 January bull-put credit spread below the $45 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 11.1% return in just 6 weeks as long as NEM is above $45 at January expiration. Newmont would have to fall by more than 11% before we would start to lose money. Learn more about this type of trade here.
NEM hasn't been below $45 since September and has shown support around $49 recently. This trade could be risky if the dollar stabilizes and gold prices fall, but even if that happens, this position could be protected by strong support the stock has formed just above $45 in October and November.
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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