Agnico Eagle Mines Ltd (USA) (AEM) Call Buyers Turn Out as Gold Stocks Rally

Agnico Eagle Mines Ltd (USA) (AEM) is rallying with gold stocks, and option traders are placing bullish bets

Dec 29, 2016 at 3:47 PM
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Agnico Eagle Mines Ltd (USA) (NYSE:AEM) is riding the tailwinds of a wider rally among gold stocks -- and options traders are ramping up their bullish betting after two weeks of accelerated put buying. At last check, AEM stock is up 6.4% at $43.09, extending a recent bounce off the $35-$36 area -- a 61.8% Fibonacci retracement of its rally from mid-2015 to mid-2016. And while the shares are still off 28% from their four-year peak of $60.10 in early August, AEM shares could find a layer of support at the round $40 level, which represents a 50% Fibonacci retracement. Nevertheless, the mining stock continues to stare up at its 50-day moving average, which acted as support during the aforementioned rally, and also rejected AEM's early November rally attempts.


Turning back to the option pits, calls are currently trading at 1.5 times the usual intraday rate -- outnumbering puts nearly 4-to-1. AEM's most active options are the May 40 and 50 calls, though the International Securities Exchange (ISE) attributes part of the action to the closing of a spread. Among front-month options, the most active option is the January 2017 45-strike call. It's possible new positions are being purchased here today, meaning call buyers are betting on continued upside for AEM through expiration at the close on Friday, Jan. 20.

As touched upon, though, today's preference for calls is a change of pace for AEM option players. The security's 10-day put/call volume ratio at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows 1.48 puts bought to open for every call over the last two weeks. This ratio sits just 1 percentage point from a 52-week peak, suggesting puts have been bought to open over calls at a near-annual-high clip.

Whatever their bets, AEM option buyers are getting quite the bang for their buck. Agnico Eagle Mines Ltd's (USA) (NYSE:AEM) Schaeffer's Volatility Index (SVI) of 42% ranks in the 27th percentile of its annual range -- indicating relatively low volatility expectations are priced into the stock's near-term options. Plus, AEM's Schaeffer's Volatility Scorecard (SVS) of 83 suggests AEM has tended to make outsized moves over the past year, relative to what the options market has priced in.

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