Mine Newmont for Investing Gold

The recent recovery in gold prices hasn't been isolated to the commodity
itself. Gold mining stocks have also seen an influx of buying, with many
breaking above key resistance levels to continue their longer-term uptrends. One
of the miners that looks particularly ripe for the picking is Newmont Mining
Corp. (NYSE: NEM ). With implied volatility currently nestled in the middle of
the six-month range, and trading right in line with historical volatility,
option prices seem neither a steal nor overly expensive. So, how do you play it
with options? First, let's look at the typical behavior of gold miners. The
price action tends to be a bit more erratic, which increases the odds of
shorter-term aggressive traders getting whipsawed out of their trades. The
answer in this situation may lie in entering a cheaper spread trade that
doesn't require too much micromanaging – the call butterfly spread. (If you
aren't able to do butterflies in your account or you're looking for a
simpler strategy, I'll give you an alternative in just a moment.) Conventional
butterflies are taught as neutral trades, but can be structured with more of a
directional tilt by modifying the strike prices involved. The basic structure of
a long butterfly is to sell the "body" and buy the "wings." The trade
has a structure of 1 x 2 x 1. The body of the fly should be centered at whatever
your target price is for the stock. In the case of NEM, let's say we think the
stock is likely to reach $75 by December expiration. So we're going to center
the fly at $75 by selling two NEM Dec 75 Call options. To complete the position
we now need to buy the wings – a call option with a strike below the body and
one above the body. Let's buy the NEM Dec 70 Call and the NEM Dec 80 Call. To
sum things up, we're "buying to open" one Dec 70 Call (currently trading
for $2.70) and one Dec 80 Call (currently trading for 35 cents) – that's a
$3.05 debit so far. Meanwhile, we're