Agnico Eagle Mines Ltd AEM shares are up 7% over the past week as international trade tensions have driven gold prices higher.
The stock traded higher by another 3.3 percent on Thursday, and some unusually large option trades on Thursday morning could suggest a trader with deep pockets is hedging a massive bullish bet on Agnico Eagle.
The Trades
On Thursday morning, Benzinga Pro subscribers received four options alerts related to Agnico Eagle.
At 11:13 a.m., a trader sold 1,378 Agnico Eagle call options at a $44 strike price that expire on Aug. 16. The calls were sold at the bid price of $6.276 and represent an $864,832 bearish bet on Agnico Eagle shares.
About seven minutes later, a series of three additional Agnico Eagle call sales were completed within 15 seconds. Likely the same trader sold another 1,863 of the same August $44 Agnico Eagle call options at bid prices of between $6.27 and $6.35. The three sales represented an additional bearish bet worth more than $1.16 million.
All together, the total value of all the Agnico Eagle calls dumped on Thursday morning totals more than $2 million.
Why It’s Important
Due to the relatively complex nature of the options market, options traders are generally considered to be more sophisticated than the average stock trader. In addition, large options traders are often professional, wealthy individuals or institutions, either of which could have unique insight or information about a company. Even traders that stick exclusively to stocks watch the option market closely for unusual trading activity as an indicator of where the “smart money” is focusing.
Unfortunately, because stock investors often use put options to hedge larger bullish stock positions, there’s no way to be 100% certain whether an option trade is a standalone purchase or a hedge against a stock position. Given the large size of the call sales on Thursday morning and the fact they seem to have been broken up strategically into smaller lots, there’s a good chance at least some of them were institutional hedges, suggesting all the call selling may not be as bearish as it seems.
In fact, there have been several bullish developments for Agnico Eagle in the past month.
First, the company announced on May 30 it reached commercial production at its Meliadine mine.
The SPDR Gold Trust GLD is also up 9% since May 1 as investors have flocked to gold as a safe-haven investment in an environment of slowing global economic growth and ramping trade tensions between the U.S. and China. If Thursday’s Agnico Eagle option sales are, in fact, a hedge against a bullish position in the stock, the institutional investor may be betting on further global economic turmoil driving golf prices even higher over the next couple of months.
Finally, Agnico Eagle is scheduled to report earnings on July 24, ahead of the expiration date of these call options. Thursday’s trader may simply be hedging a bullish bet that Agnico will exceed market expectations for the quarter.
The stock traded around $49.96 at time of publication.
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