Buy Alert: June 26, 2014
Buy Alert: June 26, 2014
Option Strategies:
Buy Hecla Mining (HL) September 19, 2014 $3.50 calls for $0.27 or better.
Buy Pan American Silver (PAAS) October 17, 2014 $16.00 calls for $0.90 or better.
Commodity Outlook: Silver
Things are finally looking up for silver…
Multiple data points have been released over the past few weeks that support higher prices for the lustrous metal.
First of all, the most recent US CPI reading came in higher than expected. The price of consumer goods jumped by .04% in May, which pushed year-over-year inflation up to 2.1%. As you may know, rising inflation is a great sign for anyone bullish of silver.
And that’s not all…
Investors just found out first quarter US GDP fell like a stone. A report from the Commerce Department earlier this week revealed the US economy actually shrank by 2.9% in the first 3 months of the year!
If US economic growth continues underperforming in the second and third quarter it’s quite possible Fed Chairwoman Janet Yellen slows the pace of tapering. Such a situation would be very good for silver.
No doubt about it, rising inflation and a shrinking US economy are disturbing signs.
Unless you’re bullish on silver…
If we continue seeing these troubling economic trends there’s a very good chance silver continues higher in coming months.
Here’s how we’re going to play it…
Resource Company #1: Hecla Mining (HL)
HL is a US based silver miner with operations in Colorado, Nevada, and Idaho. Understandably, this small-cap producer took a beating as the price of silver collapsed over the past few years.
But with silver prices on the mend, HL shares will likely do the same. You see, HL management has managed a 65% increase in revenues in the first quarter of 2014 vs. the first quarter of 2013.
What’s more, operating cash flow has exploded from $11 million in Q1 2013 to $30 million in Q1 2014. And that’s in spite of the fact silver traded at $10 less per ounce in Q1 2014 vs. Q1 2013.
No doubt about it, if the price of silver continues higher over the next few months, HL will benefit greatly!
Don’t delay in buying the HL September 19, 2014 $3.50 calls for $0.27 or better.
The current bid/ask spread for this contract is $0.21/$0.23.
Do not pay more than $0.27 per contract!
Our official entry price for performance tracking is $0.23. Your price may be higher or lower.
Exit Strategy:
Remember, we want HL to trade higher. Our first profit target is the $4.00 resistance area. We’ll likely see additional gains for HL if silver continues higher to the $24 area in coming months. In such a scenario, HL may jump to our second profit target at $5.50.
The risk control price for this trade is $2.95. If HL trades below that level, conservative investors should consider closing this trade to conserve capital.
Resource Company #2: Pan American Silver (PAAS)
PAAS is an International silver producer with operations in Canada, USA, Mexico, Peru, Bolivia, and Argentina. The company is one of the lowest cost producers of silver amongst pure-play international producers.
Even the price of silver was in the dumps in the first quarter of this year, PAAS still had positive operating cash flow- a very good sign. What’s more the company has a strong balance sheet and pays a dividend.
No doubt about it, long-term dividend investors are looking closely at PAAS right now.
As a result, we’re buying the PAAS October 17, 2014 $16.00 calls for $0.90 or better.
The current bid/ask spread for this contract is $0.80/$0.85.
Pay no more than $0.90 per contract!
Our official entry price for performance tracking is $0.85. Your price may be higher or lower.
Exit Strategy:
Remember, we want PAAS to trade higher. Our first profit target is $17.00. Like HL, we’ll likelyl see additional gains for PAAS if the price of silver continues higher in coming months. In such a scenario PAAS may jump to our second profit target at $20.00.
The risk control price is $13.50. If PAAS trades below that level, conservative investors should consider closing this trade to conserve capital.
Until next time,
Justin Bennett
Category: Commodity Trading
