Newmont Mining covered calls options trade could earn 115% annualized in one week

NEM is a good, safe dividend and gold stock with liquid and deep options trading depth and liquidity. While the one week trade offers amazing potential, it also could be a loser.

By Donald E. L. Johnson

Cautious Trader

• Banking industry bailouts and Fed are putting the spotlight on NEM, GOLD, GDL and GDX for income traders in bear market.

• NEM's dividend yields 3.49% and over 4.5% taxable equivalent returns in tax sheltered accounts.
   

• There is about a 48% probability that if a trader buys NEM Friday the stock will be called at the close of the seven-day trade. 
   

• The annualized return on the trade has a 62% chance of closing out of the money, giving an investor an annualized return on risk of about 90% on the cost of the stock and 115% on the net debit (stock cost - premium-dividends collected during the trade.) NEM went ex-dividend on 3.8.23. Realty: Weekly trades like this don't come along every week for 52 weeks.

This buy/write trade would involve buying 100 NEM shares at $45.78, or about $4,578 per option contract for 100 shares. After the stock buy order is filled, the trader  sells one or more NEM $46 strike (delta .48) calls contract that expires at the close of trading on Friday, 3.24.23 (7 days).  On Jan. 2, 2022, I wrote about my covered calls portfolio strategy.

The probability that the stock will close out of the money (OTM) below the $46 strike would be 48%. If the stock closed at $46.01 or higher next Friday, the investor's gain would be about  0.48%. Barchart has a 40% sell rating on NEM. Cautious traders may wait to do the trade after the Fed's next move on the Federal Funds rate is announced next Wednesday. Thirteen analysts on average rate NEM a moderate buy, according to Barchart.com.

The risks are that NEM will drop sharply for some reason during the next week. It might be awhile before the trader can do enough covered calls and puts trades on NEM and collect enough dividends to come out of the trade with a profitable net debit.

That's where I am. NEM was put to me last month at $49. I was waiting for a good NEM and gold rally to sell covered calls at the $49 strike. I've collected $0.40 per share in dividends. Yesterday would have been the time to sell calls, but I didn't get the trade done and I didn't want to sell during today's $0.33 per share price drop in the stock.

I'm in NEM for the dividends plus options premiums. The stock is fairly priced with a 9.75  price to cash flow ratio.

On Friday, I'll consider selling NEM 4.21.23 $50 covered calls for about $0.34 a share. My net debit would be my cost less the $0.40 dividend less the $0.34 covered calls options premium, or about $49-$0.76 equals $48.24 a share. The ARoR would be $1.60/$48.24, or 3.3%. I'll be happy if the stock is called at a profit. Then I'll sell NEM puts again. It is part of my dividend stock portfolio.

Indeed, I might wind up selling more puts for several weeks or months to generate more income while I wait for the stock to rally.

LINKs:

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Beware. Like all investing, trading stocks and options is risky. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I receive no compensation for producing this content nor for any links.