AEM Options Traders Lock In Quick 100% Profit

Wall Street was too bullish on AEM stock

Managing Editor
Aug 16, 2018 at 12:03 PM
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Subscribers to Schaeffer's Option Advisor just scored a 100% profit with the Agnico Eagle Mines Ltd (NYSE:AEM) November 44 put that we recommended for our August newsletter, released the last week of July. We're going to take a look back to see why we were initially bearish on the mining stock, and how the options trade unfolded.

At the time of our recommendation Friday, July 27, shares of Canadian gold producer AEM had been suffering on the charts, plunging on the back of a poorly received earnings report. The stock had also failed to overtake its year-to-date breakeven mark, and had shed more than 8% in 2018. Plus, AEM had moved back below the round $10 billion market cap, and broke below a trendline that connected its higher lows from March. 

What's more, we remarked that there was plenty of room for bearish analyst attention to drive AEM even lower. While four of the nine brokerages following Agnico Eagle stock carried a "hold" rating, the remaining five recommended it as a "buy" or "strong buy." In other words, despite the technical underperformance, most Wall Street firms still had bullish ratings in place. Furthermore, while short interest on AEM had more than doubled since the start of the year, it still remained 60% below its mid-2014 highs. We noted that the stock could get hit with stiffer headwinds as more shorts climbed on board.

The day we released our recommendation, Agnico Eagle Mines stock was trading near the $42 mark. Following this, the stock quickly extended its sell-off by more than 9%, to the $38 level this past Tuesday, Aug. 14. Then yesterday, the stock gapped to an intraday low of $35.46, allowing us to close the trade and lock in a 100% profit -- in just 13 days.

 

Daily Chart of AEM since May with Entry and Exit

 

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