2 Mining Stocks With Cheap Options Ahead of Earnings

Agnico Eagle Mines and Coeur Mining will report earnings this week

Apr 25, 2017 at 1:56 PM
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Earnings season is kicking into high gear. While it may seem like a volatile time to have a hand in the stock market, options trading offers speculative players a chance to participate at a lower cost of entry -- and, in some scenarios, with limited risk. Plus, Schaeffer's Senior Quantitative Analyst Rocky White ran the numbers on stocks that have high Schaeffer's Volatility Scorecard (SVS) readings, meaning the shares have tended to make outsized moves relative to what the options market has priced in. This could signal a prime buying opportunity for options traders ahead of earnings. Two names that popped up on the list are mining stocks Agnico Eagle Mines Ltd (USA) (NYSE:AEM) and Coeur Mining Inc (NYSE:CDE).

Agnico Eagle Mines Options Traders Buy Pre-Earnings Calls

In addition to having an SVS of 100, AEM's Schaeffer's Volatility Index (SVI) of 37% is docked in the 30th annual percentile ahead of the company's earnings report, scheduled for after Thursday's close. In other words, low volatility expectations are being priced into AEM stock's near-term options -- another potential boon to premium buyers.

Looking back over the past eight quarters, AEM has averaged a single-session post-earnings move of 4.7%. In two of those quarters -- including the most recent one -- the stock closed lower in the session subsequent to reporting. This time around, the options market is pricing in a slimmer 3.9% move for Friday's trading, regardless of direction.

Options traders have been betting on a move to the upside, buying to open calls over puts at a faster-than-usual clip in recent weeks. Agnico Eagle Mines Ltd's 10-day call/put volume ratio of 5.11 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 78th annual percentile. Today, however, AEM stock is trading down 5% at $43.37, and is at risk of closing below a trendline connecting a series of higher lows since early March.

Coeur Mining Stock Struggles Ahead of Earnings

CDE stock's SVS is perched at a high 99, while its SVI of 60% rests below 61% of all comparable readings taken in the past year. Coeur Mining is due to report earnings after tomorrow's close, and the options market is pricing in an 8.5% swing for the stock in Thursday's trading. More broadly, CDE stock has risen in the session after reporting five of the past eight quarters, though in February, the shares gapped 21.9% lower post-earnings.

This time around, options traders appear to be anticipating a positive earnings reaction. The stock's May 10 call has seen the biggest rise in open interest over the past 10 trading sessions, with 3,174 contracts added. Data from the major options exchanges indicates mostly buy-to-open activity in recent weeks, meaning speculators are betting CDE stock will surge into double-digit territory by the close on Friday, May 19.

Looking at the charts, CDE stock saw the north side of $10 in mid-April, but was quickly rejected by its 140-day moving average -- a trendline that served as support last October, but has been a ceiling throughout 2017. Today, Coeur Mining Inc is trading down 2.5% at $9.05, struggling to stay above its year-to-date breakeven mark.

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