Kinross Gold Options (KGC): Unusual Trading Activity

| July 16, 2012 | 0 Comments

KGC OptionsOptions in Kinross Gold (KGC) traded an enormous amount of options Friday just before the close. 

Even though the broad market was largely in the green Friday, we were still surprised that our tracking system showed extensive call buying in a small gold stock.

I mean, Europe’s still dealing with its financial crisis.  And domestic economic data has been mediocre at best. 

Plus, I don’t think this name’s seeing “flight to quality” buying, as it’s not a pure gold play.

However, with shares in Kinross Gold at multi-year lows, a few traders are clearly looking for a turnaround within the next month.

As trading was coming to an end on Friday afternoon, KGC was up fractionally at $7.98 a share.

But then all of a sudden, KGC call buyers came out in droves.

By the time the closing bell sounded, volume in the KGC August $9 strike call options had surpassed 24,500 contracts.  The average price on these call options was $0.22 a piece, putting the total cost of the trades at a cool $539,000.

The trade is nothing more than a straight long bet on KGC.

As long as KGC closes above $9 per share at August expiration, these call buyers stand to make a profit.  And since there were no offsetting option positions established, the position will certainly generate a lot of leverage if KGC moves to the upside. 

Not too shabby!

But what’s really interesting is that KGC calls outnumbered puts by a bullish 6 to 1 ratio.  That’s a large spread for a small company like this.

So, the question is, why such heavy call buying on this unusual name?

If you don’t already know, Kinross Gold is a Canadian-based gold mining company.  They operate eight producing mines and own 50% joint venture stakes in two other mines.  All of their operating assets are located in the U.S., Latin America, Western Africa, and Russia.

But the best part is, KGC has very large reserves of both gold and silver. 

At the end of last year, the company had proven and probable gold reserves of 62.6 million ounces.  And their silver reserves were even larger at 84.9 million ounces.  Based on current prices, these precious metal reserves are worth a whopping $12.3 billion.

Here’s the thing…

After getting beaten down heavily over the last year, it seems KGC’s now putting in a short term bottom.  And if we see any type of rally in gold prices over the next month, KGC will likely trade higher in lockstep.

I think this is exactly what these options traders are betting on here.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.