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Greece Inks a Huge 2nd Bailout!! Metals Jumping! Options honey?! By: Tim Bolger

Photo courtesy of: http://www.iho-ohi.org/index.php/category/greece/

Athens Greece

Riots continue to escalate all over Athens throughout the long weekend and Greece inks a 2nd bailout deal with European finance officials to save the country from bankruptcy in the short term…such a beautiful country that has been crushed by sovereign debt issues and a very weak economy. The Dow Jones is flirting with 13000 and metals are jumping today on this breaking news on Greece…Gold is up over $26 an ounce today and I posted an article on Jan 17, 2012 about my long term bull case for Goldilox moving higher…here is my previous post on Gold: http://optionshoney.com/2012/01/17/can-you-say-goldilox-is-soaring-this-shiny-metal-is-hott-in-january-gold-options-honey/.  I suggested traders/investors think about buying the June 15, 2012 $165 strike Call Options on the GLD for $6.00 a contract. Those GLD Options contracts are spiking higher today and may still move much higher in the near term. The ishares Silver Trust(SLV) is trading 2% higher as well today.   I would recommend more conservative investors to buy shares of stock on the GLD and SLV for the long term…I like the GLD at $165 and the SLV at $29.

I am very positive on the miners going forward and I think there is still huge upside in that space…Many of the miners have underperformed the big rise in metals prices over the past few years and that is where I am seeing the most opportunity for investors seeking value plays.  I am increasing my position today on Hecla Mining (HL) by buying the Call Options and I would be a buyer of the Call options on General Molycorp(GMO) as well. Hecla Mining reported earnings today and the stock is soaring over 7 %…Business wire reports: Hecla Reports Record 2011 Revenue & Gross ProfitsBusiness Wire(Tue 8:00AM EST). Hecla Declares Silver-Linked Dividend and Adds New Minimum DividendBusiness Wire(Tue 8:15AM EST)

A quick profile bio on Hecla Mining courtesy of Yahoo Finance: Hecla Mining Company, together with its subsidiaries, engages in the discovery, acquisition, development, production, and marketing of silver, gold, lead, and zinc. The company produces lead, zinc, and bulk concentrates and sells them to custom smelters; and unrefined gold and silver bullion bars, which it sells to precious metals traders. It holds 100% interest in the Greens Creek operating unit located near Admiralty Island in Alaska; and 100% interest in the Lucky Friday operating unit located in Idaho. Hecla Mining Company founded in 1891 and is based in Coeur d’Alene, Idaho.

http://www.hecla-mining.com/exploration/ Chart below is on Hecla Mining Silver Growth:

Silver Growth

What is the Options Play on Hecla Mining?!  

Hecla Mining(HL)  is jumping over 6.5% today and I would think about buying the March 16, 2012 $5 strike Call Options on HL for .45 cents a contract.  Attached is the March 16, 2012 Options Chains for HL courtesy of Yahoo Finance:  http://finance.yahoo.com/q/op?s=HL&m=2012-03.

I would also consider buying longer term options contracts on HL further out to give us a little more time for a continued rise in the shares of HL.  I like the HL June 15, 2012 $6 strike Call Options for .25-.30 cents a contract. Attached is the Options Chains on HL for June 15, 2012 expiration courtesy of Yahoo Finance: http://finance.yahoo.com/q/op?s=HL&m=2012-06. Stay tuned for more big trades at http://www.Optionshoney.com!!

See below the 5 day technical chart on Hecla Mining (HL) courtesy of Fidelity Investments:

Chart

Hecla Mining Pounded on Huge Volume!! Let’s Mine the Honey with Options… By: Timmy B.

Hecla Mining(HL) is down on heavy volume today as Reuters reports: UPDATE 1-Hecla cuts 2012 silver production outlook at Reuters(Wed 8:37AM EST).  Hecla Mining was originally founded in 1891.  Hecla is headquartered in Coeur d’Alene, Idaho and has a majority of its mining operations in the U.S. and Mexico.  Hecla’s primary business focuses on the discovery, production, and marketing of the following metals: gold, silver, lead, and zinc.

Hecla paid a .02 cent dividend on Nov 16, 2011 and traded to an intraday high of $11.56 on Jan. 3, 2011. Personally, I feel that Hecla is being punished severely in the short term by this news on cutting it’s 2012 silver production outlook.  My thesis is that this is a short term thunderstorm for Hecla Mining and that with the continued sovereign debt crisis around the globe, printing more U.S. dollars and inflation on the horizon, metals continue their long term trend higher. Higher metals prices will lead to higher profits and revenues for mining companies like Hecla Mining.

I definitely like the stock at these price levels and HL is trading down over 26% today, with an intraday low of $4.25.  I think the best trade here can be made using “Options” to benefit from the weakness in shares today.

So, the million dollar question is,  how do we make money on HL share price weakness?? Remember, one of the keys to profiting from options is patience and executing our trades at the best time, in an attempt to achieve our end goal of making money!! Tens of thousands of trades exist at all times and we seek to discover some of the best here for our followers at OptionsHoney.com.  Timing is so important to making money in the short and long run. Remember time value+intrinsic value=option premium we pay for the right to buy or sell puts/calls. In addition, high levels of volatility increase option premiums. When stocks fall significantly, the cost to protect these shares with put options rising significantly. This creates opportunity for the trade I want to make on HL today.

Option Trade#1 on HL: I like selling the HL Feb 18 4 puts for .25 cents. By selling 40 HL contracts, we collect a premium of $1,000($25 per contract x 40 contracts sold). If HL shares close above $4 at Feb 18 expiration we profit the $1,000 minus trading fees. Worst case scenario, we get exercised if the shares decline below $4 at expiration of the contracts and we have to purchase 4,ooo shares (40 contracts x 100 shares per contract) of HL at $4 a share for a net cost of $15,000 plus trading commissions (16,000 gross to purchase shares-$1,000 initial credit received for selling the $4 strike put options).  It is very important to remember that we need $16,000 in cash in our brokerage account to make this options trade as collateral to buy the shares of stock at $4, if we get exercised at expiration. Selling options is alot more sophisticated than just buying puts or calls. Feel free to ask questions that you may have.

Long term, I believe Metals and HL will trend much higher.  I am comfortable with the worst case scenario of having to go long HL shares at $4 if we get exercised.  Selling the put options helps me finance the potential purchase of these shares and take advantage of the increased volatility in HL shares with the bad news reported today.

Option Trade#2 on HL: I like buying the HL Mar 17 2012 $5 strike calls for .30 cents.  I can buy 10 contracts for only $300 and have great exposure to a near term bounce in the shares after this huge sell off today. The advantage of buying the calls is that I do not have any obligation to buy the underlying asset and cannot be exercised if the shares expire below $5 at expiration. My total risk of buying the $5 Mar calls is the $300 (10 contracts x $30 a contract)l plus trading fees.

It’s important to note that your broker is required to exercise those call options on you, even if they are only a penny in the money (meaning you get exercised if HL is $5.01 at expiration). To avoid being exercised, you need to call your broker’s trade desk and tell them not to buy the shares…Buying the shares would also require $5,000 (1,000 shares at $5 each) in cash in your brokerage account.

Chart

Source of Hecla Mining Chart: Fidelity Investments

Show me the honey!!! The Buzzzzzzzzzzzzz goes on and on baby!!

–Timmy B

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