Pan American Silver (NASDAQ: PAAS - option chain) stock is trading lower today after announcing this morning that it has made a formal takeover bid for exploration company Aquiline Resources (TSX: AQI). PAAS will offer Aquiline shareholders 0.2495 of a PAAS common share plus 0.1 of a PAAS common share purchase warrant for each Aquiline common share. 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 PAAS.This morning, PAAS opened at $25.71. So far today the stock has hit a high of $25.75 and a low of $24.35. As of 11:40, PAAS is trading at $24.52, down $1.40 (-5.4%). The chart for PAAS looks bullish.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $30 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 6.4% return five weeks as long as PAAS is below $30 at November expiration. PAAS would have to rise by more than 22% before we would start to lose money. Learn more about this type of trade here.
PAAS hasn't been above $27 at all in the past year and shown resistance around $26.50 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in PAAS.
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Reader Comments (Page 1 of 1)
10-29-2009 @ 8:11AM
goldcoinsgain said...
buying some silver isnt a bad idea just incase i was looking up the prices and there only like 15$ for an american silver doller, could be a good investment if our my dose go down the shitter.
Thanks for the great reading, we buy gold bullion in a recession. I will pass this on to our ira clients to read.