Mine These 3 Unusually Active Long-Duration Call Options

Wednesday's trading saw the S&P 500, the Dow, and the NASDAQ 100 hit all-time highs. The three indexes are up 11.92%, 5.81%, and 12.41% year-to-date, respectively. 

As I write this before Thursday's pre-market opening, Walmart (WMT) stock is up more than 6% after the company reported healthy revenue and earnings growth in the first quarter. 

Unfortunately, Deere (DE)isdown more than 5% in pre-market trading despite reporting better-than-expected Q2 2024 earnings. Commodity prices such as soybeans and corn have dropped considerably in the past year, reducing farmer equipment spending. 

Yesterday’s unusual options activity wasn’t anything to write home about. The top Vol/OI ratio was the Walt Disney (DIS)May 17 $103 call at 89.94. A day without at least one Vol/OI ratio over 100 indicates a mediocre day in the options game.  

Nonetheless, I found a theme to write about for today’s unusual options activity commentary. 

Yesterday’s trading had 16 unusually active call options expiring in 611 days, and three of them just happened to be gold miners. With gold prices nearing $2,400 an ounce, traders believe there could be a near-term correction. 

Nonetheless, yesterday’s action suggests gold remains a favorite play of investors heading into the summer. 

Here’s why you might consider one or more of the gold miner’s call options. 

Newmont Mining 

Newmont Mining (NEM)had the top Vol/OI ratio of the 16 calls with 611 days to expiration at 37.26 for the Jan. 16/2026 $65 strike. Based on the $2.92 ask price and $43.19 closing price, NEM must appreciate by 57% over the next 20 months. 

Is that realistically doable?

Historically, Newmont’s shares have appreciated more than that on six occasions since 2000. 

• In the 20 months between November 2000 and June 2002, its share price increased by 136% from around $13.25 to $31.21. 
• It nearly doubled between April and December 2003.
• It nearly doubled between November 2008 and May 2009.
• It was up 154% from November 2015 and August 2016.
• And at least two more occasions in the subsequent eight years. 

So, yes, it is possible. Likely? That’s the million-dollar question. 

The Barchart Technical Opinion rates it a Strong Buy in the short term. Of 15 analysts that cover Newmont, seven rate it a Buy (3.87 out of 5) with a target price of $47.03, about 9% higher than where it’s currently trading. 

Notably, the delta is 0.27849, which means the shares only have to increase by $10.49 (24%) to double your money by selling the call before it expires.  

With a 4.5% down payment, the risk/reward proposition is reasonable. 

Agnico-Eagle Mines

Agnico-Eagle Mines (AEM) had the sixth-highest Vol/OI ratio of the 611 DTE calls at 4.88. It wasn't crazy busy with a volume of 1,000, but making the cut with a ratio over 1.25. 

The call is the $90 strike with an $8.20 ask price. That’s a 9.1% down payment, double Newmont’s, and a 0.3722 delta. 

So, first things first, for you to consider exercising your right to buy 100 Agnico shares, they must appreciate 42% over the next 20 months. To double your money selling early, they have to increase by $22.03 (32%).

The one thing in AEM’s favor is that its near-term performance is much better than Newmont’s, up nearly 28% in 2024. It’s also better over the past five years -- up 68% to 40% for Newmont -- so the odds of it meeting the 32% and 42% bars over the next 20 months are higher. 

Additionally, analysts love its stock. Of the 14 covering it, 13 rate it a Buy (4.64 out of 5), with a target price of $76.23, 11% higher than where it’s currently trading.  

Iamgold 

Iamgold’s (IAG)Vol/OI ratio is 15th out of 16 at 1.64, with a volume of 701, the lowest of the three gold miners. Unfortunately, the $1.60 ask price is a 35.6% down payment on the $4.50 strike. While considerably higher, it’s the lowest outlay by dollar amount. 

Based on yesterday's $4.48 closing price, it has to increase by $1.62 (36%) for you to consider exercising your right to buy 100 shares. That’s the lowest appreciation percentage required of the three to exercise.

Further, the delta is 0.62118, which means you can double your money with a $2.58 (58%) move over the 20 months. 

If it appreciates 58%, you can exercise your right to buy and make approximately $2.56 a share, or 60% more than you would doubling your money selling the call. The bad news is that it’s barely appreciated by that much over the past five years, up 72%. 

Like Newmont, analysts are lukewarm about Iamgold, rating it Moderate Buy (3.45 out of 5) with a $4.26 target price, below where it’s currently trading.   

The Best Buy?

Iamgold ranks last in attractiveness. As for the other two, while analysts favor Agnico, Newmont’s risk/reward proposition is the best of the trio. 

That said, I’ve never understood why gold fans buy gold miners. As far as I can tell, purchasing the product itself tends to do better historically than the gold miners themselves, but that’s a discussion for another day.