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how well do options on NEM track the value of gold? i'm assuming pretty highly.
thats a good idea actually then since i could just buy the calls in a very close to actual exposure and hedge my bet. (the overall bet was for more than $100) so that is a good idea.
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You are welcome, glad you think it may prove useful. Some (but not all) gold stocks will actually leverage higher than the price of gold increases due to a fairly fixed level of production costs for each oz of gold reaped, among other relevant factors. Additional spot gold prices add additional value in future earnings to the company which assuming a fairly constant P/E ratio means you gain better than a one to one ratio basis as gold prices increase on the spot market.
You noticed I said "some" gold stocks will offer additional leverage which is why I suggested Newmont Mining, another good choice is Barrick Gold. I'm pretty sure these two producers do not hedge themselves as many others do. That is why I own AUY (they hedge their gold prodiction with futures) and use options on NEM. I own shares of a company with stable and predictable earnings and speculate on the others with increased built-in leverage which tends to dissipate some of the time premium of the options cost. Yes I know this should be factored into the options price but I find it often is not.
Jimbo
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NEM took a huge loss due to hedging. They no longer hedge.
ABX also hedged and now they claim they dont:
http://www.barrick.com/Investors/Hed...n/default.aspx
All gold stocks will rise during the run to $1000/ounce, but after that those who do not hedge will outperform those that do.