Gold stocks have been hot as a pistol this month. It’s as if the denizens of the Street decided, all at once and out of the blue, that gold stocks are a must-have.
These newfound, giddy goldbugs are piling into the yellow metal stocks with abandon. Wait for a pullback? Not a chance! Buy with both hands because gold stocks are never going down again … or so the recent behavior seems to be saying.
While the torrid pace set by gold stocks is obviously unsustainable, price appreciation isn’t the only way to score from the gold resurrection.
The option market provides some interesting avenues for generating cash even if gold stocks meander sideways or suffer profit-taking in the coming month. The strategy is known as a covered call. It’s simple, sexy and oh-so-satisfying for those looking to generate income from their stock holdings.
Behold, three ways to squeeze cash out of gold stocks.
Squeeze Cash Out of Gold Stocks: Barrick Gold Corporation (USA) (ABX)
One of the most popular gold stocks is Barrick Gold (ABX). It’s the top holding in a number of exchange-traded funds designed to follow the gold industry. Not surprisingly, the ABX stock price has ascended alongside the industry this month.
ABX shareholders looking to capitalize on its aging rally should sell March covered calls. Increased demand has driven call prices sky-high, making them ripe for the selling. And covered call sellers are being handsomely compensated these days.
So, sell the March $13 call option for 80 cents or better. Sell one contract for every 100 shares of ABX you own. In doing so you obligate yourself to sell your shares of ABX at $13. Yes, you’re capping your profit potential in ABX, but scoring 80 cents for your troubles. That 80 cents is yours to keep whether ABX rises, stagnates or falls over the next month.
Squeeze Cash Out of Gold Stocks: Newmont Mining Corp (NEM)
Yet another rousing covered call candidate is Newmont Mining (NEM). It, too, has been caught up in the gold stock craze, rising almost $10 in the past month alone. That’s an oh-my-gosh rally for what was a $15 stock.
NEM shareholders shouldn’t rest on their laurels here. Use the moonshot as an opportunity to sell covered calls for pumped up premiums.
Sell the March $26 call for $1.20, one contract for every 100 shares you own. That $1.20 of income represents an impressive 5% return over the next month regardless of what NEM stock does.
Not a bad trade-off for promising your shares at $26 should they sit above that at March expiration.
3 Ways to Squeeze Cash Out of Gold Stocks: Randgold Resources Ltd. (ADR) (GOLD)
Rounding out our trio of cash flow generators is Randgold Resources (GOLD). It’s the most expensive gold stock of the bunch, but that hasn’t stopped it from rallying alongside its peers.
GOLD stock holders looking to cash in on their good fortune could sell the now inflated March $92.50 calls for $3.10. Again, sell one contract for every 100 shares of stock you own. On top of the $310 of income scored, a respectable 3.4% return, you can also make another $2.25 or so on the stock before having to part with your shares.
In timing the entry on these gold stock covered calls, you could wait until ABX, NEM and GOLD show signs of slowing down. The call premiums will only get better if they keep ripping.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.