From our Live Member Chat Room:
Gold/Pat - I think gold is just right at the moment. It's too easy to make money mining it at $1,250 (ABX averages less than $900) so more supply comes on-line and there's no particular major uptick in demand and people sure aren't worried about anything (see VIX) so why would gold go up?
ABX, on the other hand, is ridiculously undervalued as they have 90M ounces of gold ($114Bn) in proven reserves but, more importantly, at a $350 spread to mining costs so $31.5Bn and you can buy the entire company at $16.42 for $18.8Bn. I don't know of many better ways to turn $18.8Bn into $31.5Bn and you are still getting fantastic upside leverage if gold prices go up.
We already have plenty of ABX but, as a new trade, I'd go with:
- Sell 10 ABX 2020 $15 puts for $1.95 ($1,950)
- Buy 20 ABX 2020 $13 calls for $5.15 ($10,300)
- Sell 20 ABX 2020 $20 calls for $2.15 ($4,300)
That's net $4,050 on the $14,000 spread that's $6,800 in the money to start. Upside potential is $9,950 (245%), which is really good as it's a fairly conservative play.
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