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Eldorado Gold (AMEX: EGO - option chain) shares are rising today as gold futures have tagged another record intra-day high today. The front-month October gold contract is currently at 1,060, but was as high as 1,068 earlier this morning. If you think that the stock 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 EGO.EGO opened this morning at $12.48. So far today the stock has hit a low of $12.13 and a high of $12.48. As of 12:00, EGO is trading at $12.53 up 46 cents (3.8%). The chart for EGO looks bullish.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $7.50 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 an 8.7% return in six months as long as EGO is above $7.50 at April expiration. EGO would have to fall by more than 40% before we would start to lose money. Learn more about this type of trade here.
EGO has not been below $7.50 since April and has shown support around $10 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 EGO.
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Reader Comments (Page 1 of 1)
10-27-2009 @ 6:32PM
emondm said...
Metal mining and foreign investors are very young in China, and the country's rare earth resources are staggering. EGO is the best bet now, but don't overlook JINSHAN, a small, real comer. emondm