Consider Kirkland Lake (KL) As Gold Prices Start to Regain Upward Momentum

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

With the broader markets paring recent gains it appears to be a good time to be in precious metals and gold related stocks. Check out the following two articles which discuss the upside potential and a recent price upgrade – 3 Gold Stocks to Buy in June and Roth sees gold rallying to $2,200 by 2022, upgrades Kirkland Lake.

Technicals

From a technical perspective, KL has come into some notable support near $36 that buyers have defended thus far. There are a few more layers of support between $34.50 and $35 that originate from a weekly chart and technical traders may look to defend these levels in the event the stock dips a bit further. In addition to the strong downside support, a sharp rise in spot gold in the past week stands to keep related stocks well bid. Also, the popular gold miners ETF (GDX) made a notable bullish breakout last month and the technical outlook suggests this sector could be on the verge of a major bull run.

KL Chart June 2020

If you agree there’s further upside ahead for KL, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.

Buy To Open KL 17JUL20 30 Puts (KL200717P30)
Sell To Open KL 17JUL20 35 Puts (KL200717P35) for a credit of $1.33 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when KL was trading near $37.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will only be $1.30 per spread.  Each contract would then yield $131.70 and your broker would charge a $500 maintenance fee, making your investment $368.30 ($500 – $131.70).  If KL closes at any price above $35 on July 17, both options would expire worthless, and your return on the spread would be 36% (411% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates June 13, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry