Buy Alert: September 11, 2015

Buy Alert: September 11, 2015

 

Option Strategy:

Buy Franco-Nevada $FNV October 16, 2015 $40.00 puts for $2.60 or better.

 

Commodity Outlook: Gold

Despite continued uncertainty in the equity markets the past week, gold is sliding back towards yearly lows.

As you know, the yellow metal is typically known as a flight to safety asset in times of equity market panic.

However, the past month’s intense uncertainty has had a rather subdued effect on gold.  The only bullish price action the metal received was a short-lived rally to $1,150 in late August.

With volatility slowly subsiding in equities, there’s a very good chance gold sinks back to the late July lows at $1,080 an ounce.  And if that support level breaks, there’s a clear shot to $1,050- and possibly lower.

Here’s how we’ll profit from potential additional downside in gold…

 

Resource Trade: Franco-Nevada $FNV

Being a premier operator in the gold mining industry, $FNV is trading at a lofty premium.  In fact, shares of the miner are crossing the tape at ridiculous 58x forward earnings and 14x sales- much higher than any other large-cap gold producer.

Clearly, there’s a lot of hot air that can come out of $FNV’s share price should the price of gold sink further in coming weeks.

So here’s what we’ll do…

Buy the $FNV October 16, 2015 $40.00 puts for $2.60 or better.

The current bid/ask spread for this contract is $1.85/$2.40.

Do not pay more than $2.60!

Our official entry price for performance tracking is $2.40.  Your price may be higher or lower.

Exit Strategy:

Remember, we want $FNV to trade lower.  Our first profit target is $38.50 while our second target is at $34.00.

Our risk control line is $44.15.  If $FNV trades above that level, conservative investors should consider closing this trade to preserve capital.

 

Category: Commodity Trading