Breaking Down Our Winning Trade On Newmont Mining Corp (NEM)

Our subscribers made 170% on a recent Newmont Mining Corp (NEM) put option trade recommendation

Jan 30, 2017 at 10:44 AM
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Our recommended Newmont Mining Corp (NYSE:NEM) weekly 1/27 37-strike put delivered a 170% bottom-line profit for subscribers of Schaeffer's Overnight Trader. Below, we'll take a look at what made the NEM options trade so attractive, and how the stock performed following our recommendation. 

On Jan. 24, NEM shares tested resistance at their 200-day moving average -- a trendline that had rejected the stock on multiple occasions in late 2016. The candlestick that printed on that day was a "gravestone doji," which piqued the interest of Schaeffer's Senior Trading Analyst Bryan Sapp. "The fact that it acted the way it did, right at the 200-day moving average, was significant," says Sapp, given that gravestone doji candles are generally reversal signals. What's more, the 200-day moving average was parked near the $36.50 level, which was home to heavy call open interest, potentially bolstering the overhead speed bump.

From a contrarian perspective, the extreme bullish sentiment surrounding NEM shares was also promising. The stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) showed 2.51 calls bought to open for every put during the previous two weeks. This reading sat just 4 percentage points from an annual peak, indicating option traders were buying to open calls over puts at a faster rate than usual. This positioned NEM for an outsized decline on a potential bullish exodus.

Following our recommendation, Newmont Mining Corp (NYSE:NEM) did indeed fall from the aforementioned 200-day trendline, shedding nearly 9% from its Jan. 24 intraday high to its Jan. 26 intraday low. Amid the pullback, we instructed subscribers to close half of their position on Wednesday morning, and the remainder on Thursday morning -- that is, before the stock took a bounce off its 50-day moving average, in what could be a bullish reversal.

170127 NEM

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