I started a series exploring the possibilities in the options of gold stock after the U.S markets took a detour down south yesterday in response to the selloff in Europe. The situation remains unchanged today as the S&P 500 was trading down 0.08% and Dow is down 0.26% as at 11:37AM EDT. In view of this continued downtrend in the market, I will continue with options of gold stocks as we explore possibilities in Goldcorp Inc. (NYSE:GG).
Goldcorp in Focus
Goldcorp with its market capitalization of $20.90B is a gold producer engaged in the operation, exploration, development and acquisition of precious metal properties in Canada, the United States, Mexico and Central and South America.
Goldcorp VS S&P 500: Year-to-Date Performance
The chart above plots the stock of Goldcorp against the S&P 500 in the year-to-date period. You will observe that Goldcorp outperforms the S&P 500 with a 30.41% price change compared to a 6.13% price change. In fact, Goldcorp’s outperformance of the S&P 500 is more than Barrick Gold’s outperformance as shown in yesterday’s post.
However, I am more concerned with chart pattern than with the percentage price change. You will observe that shares of Goldcorp trades inversely with the S&P 500 because shares of Goldcorp trade up at about the same time that SPX trade down and vice versa. A look at the tail of the plotted lines shows that the SPX is entering the phase of another downtrend; hence, I consider this a very good time to position you for an uptrend in shares and call options of Goldcorp.
More Reasons to Buy Goldcorp Calls
- Production in Safe Jurisdictions
One of the things that can affect a gold company’s top and bottom-line is geo-political instability in the countries where its production mines are located. Goldcorp is insulated from such geopolitical risks because its operation throughout the Americas is located in safe jurisdictions. In fact, it might interest you to know that its gold production in the Americas is 100% unhedged to show the level of stability that we can expect it its production levels going forward.
- Impressive Lineup of Development and Exploration Projects
Goldcorp has set a lofty goal to achieve 50% production growth over the next two years and the company’s development and exploratory pipeline makes this goal realistic. For one, the company expects production to speed up at the Pueblo Viejo project by next month for the contribution of 405,000 to 420,000 ounces of gold in 2014.
In addition, the company also expects the first gold production its Cerro Negro project by next month and higher grades of gold is being expected at Penasquito project going forward. The company expects the Eleonore project in Quebec to commence production by the end of this year and first gold production is expected from the Cochenour project by the beginning of the first quarter.
How to Trade GG Options
Goldcorp exceeded the analysts’ estimates in its earnings and revenue when it reported first quarter results in May and the company is on track to deliver another stellar performance on July 31. I am strongly bullish on Goldcorp and it is hard to go contrarian on this stock based on the strength of its bullish rally. I recommend the GG Jan 2015 30.000 call (GG150117C00030000) at its asking price of $1.66.
— Daily Option Alerts