Kinross Gold Options (KGC): Unusual Trading Activity
Options 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.
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
