Yamana Gold (NYSE: AUY - option chain) stock is falling today as gold futures are retreating from recent highs. Last week, front-month gold was approaching $1,000 quickly, but on Friday dropped 3% and today gold is down another 1.5% so far to trade below $950. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AUY.This morning, AUY opened at $10.31. So far today the stock has hit a low of $10.17 and a high of $10.45. As of 12:35, AUY is trading at $10.39, down 26 cents(-2.4%). The chart for AUY looks bullish.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $14 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 6.1% return in four months as long as AUY is below $14 at October expiration. Yamana would have to rise by more than 34% before we would start to lose money. Learn more about this type of trade here.
AUY hasn't been above $14 since July and shown resistance around $9.70 recently.
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 AUY.
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