Schaeffer's Golden Options

10/03/2003 12:00 am EST


Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

Bernie Schaeffer picks two gold stocks in the latest issue of his The Option Advisor. For those seeking leverage, he also recommends options strategies for these picks. We note that options can be complex, and we caution readers to only invest in ways they fully understand. Here, Schaeffer offers two bullish strategies for his top gold picks.

"Goldcorp (GG NYSE) operates mines in South Dakota and Ontario, churning out around 600,000 ounces of the yellow metal each year. Technically, the equity recently overcame resistance at the 13 region, which had thwarted the stock's advances in December and August. As contrarians, we like to see signs of skepticism as a stock is trending higher, for therein lies potential buying strength. The speculative crowd is wary of GG, as evidenced by Schaeffer's put/call open interest ratio. Wall Street is also a cautious bunch. While there are 20 brokerage houses following the shares, according to Zacks, only three have named GG a 'buy.'  For options traders, we recommend buying the Goldcorp April 12.50 call.

"Newmont Mining (NEM NYSE) is riding the crest of a three-year uptrend that has them sitting near six-year highs. What's more, NEM has outperformed its peers in the XAU Gold and Silver Index throughout 2003. The shares are up about 67% from their March low due to the unwavering support of their 10-week trendline. NEM has not suffered a weekly close below this intermediate-term moving average since mid-April. Sentiment toward the stock is clearly at odds with its technical prowess, as options players demonstrate a preference for puts. In addition, only six of the 13 analysts following NEM rate it a 'buy' or better. This sets the stage for future upgrades. For options traders, we recommend selling the November 37.50 put on the stock."

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