KGC (Kinross Gold Corp) came up on our statistical probability radar this evening.
Based on our technical analysis using this chart (15M), we went contrarian on the preponderance of outstanding Call sentiment.
TOS Analyze Tab – Price Slice is set at seven slices: 15% shows a 59.45 Delta with a -.559 Theta on the February Option Chain.
At the $5 Strike price the open interest on Calls out weigh the Puts by 2 to 1 – ATM. Optimistic hype factor about a positive earnings report “after market” wants us to fade this one.
Comparatively to the S&P 500 that spike way above the KGC’s closing at 5.37, after a nice +5.50% gain, the Polarized Fractal Efficiency is 52.5709; Market Forecast Indicator noodles nearing an overbought scenario. Our 377 EMA shows a sweet spot for a “take profit” zone from the current $5.37 up to $6.72. The S&P 500 filled this in today on the 6M Day Chart.
But breakouts are not reliable around earnings, so we’re positioning a buy PUT on the February 14 (9) option chain, one leg out at the $6 strike price, and buying a March 14 (37) Call at the $5 strike price.
If earnings give KGC a secondary rocket boost, then our target is $5.85, about $.50 more that translates into a .5 move on a Bot Call Premium ATM. We’ll enter at the $6 strike, intrinsic value on the Ask premium.
Update: February 13, 2014
We entered at the February $6 strike price, buying a PUT at $0.07. The Ask price closed at $0.11. KGC reported a Q4 Earnings per Share at $0.02 versus $0.03. We’re up $0.04. KGC dropped from $5.41 to $4.96 yesterday.
Signals: Three upward OHLC bars that show exhaustion on the trend; preponderance of outstanding Calls, but most importantly the Implied Volatility versus Historical Volatility. We use a formula to calculate the: The Current IV, Current Historical IV, and the Option Chain month’s IV.
The market opened down this morning. Currently, KGC February $6 strike premium is up $.17 and climbing. Implied Volatility being above Current IV and HV is our signal to buy the PUT.
Final: $.77 Close. $0.7 – $0.77 = $.70 profit (minus commissions). Invested $7 – BOT PUT + commissions comes out with a $70 profit (minus commissions).