EOT Trade Alert – December 23, 2010

| December 23, 2010

December 23, 2010

Trade Alert:

   Buy AUY April 2011 $12 Calls at $1.35 or better

Company Background:

Yamana Gold (AUY) is a Canadian-based gold producer.  They have properties throughout the Americas including Brazil, Argentina, Chile, and Mexico.

Short-Term Catalyst:

Gold has pulled back from its all-time high of $1,430 per ounce the last few weeks.  But the gold bull market is far from over.  I think this pullback is a great buying opportunity.

Here’s why…

Remember, gold is a store of wealth.  It’s an alternative to paper currency.  And unlike the fiat paper currencies, there’s no central bank that can simply flip on the printing press and devalue the price of gold.

The US is already printing money to the tune of $600 billion over the next six months. And we are seeing more currency printing from Europe and Japan.

Remember, the world economy isn’t out of the woods just yet.  There are still some serious threats that need to be dealt with.

The most pressing is the sovereign debt crisis.

Greece and Ireland have already taken bailouts.  And several other European countries could need them in the near future.  (Moody’s recently downgraded Portugal’s bonds.) And now some economists are predicting a major crisis will hit state and municipal debt next year.

There’s only way for governments to fund bailouts of this magnitude… You guessed it, they’ll crank up the printing presses.

Now, I don’t know how, when, or even if these crises will develop.  But just the fact that these risks are present means investors will continue flocking to gold.  It’s the best alternative to owning paper currency.  That means the gold bull market should continue charging to new heights.

Simply put, higher gold prices are great news for the gold mining stocks.

Let’s grab call options on Yamana Gold now to profit as gold prices soar to all-time highs over the next few months.

Trade Details:

Underlying Stock Symbol: AUY
Current Bid-Ask Price: $1.25 – $1.28
Option “Buy Up To” Price: $1.35
Break-Even On Stock At Expiration: $13.35
Maximum Risk Per Contract: $135

Exit Strategy:

AUY is trading at $12.42 per share.  Resistance levels will be at $14 and again at $17. Remember, we want this stock to move higher.  Support levels will be at $11 and $10. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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