Market Overview

Large Investors Betting that Why IAMGOLD Will Make a Huge Move Next Year

There is one sector that has been hit very hard this year even as the market has soared - mining stocks.

With gold and silver still off the highs, investors have piled out of mining stocks.  As in any business, if your costs of producing a good are relatively fixed over the short-term, but the price you can get on the market is falling, naturally your business will suffer.

Am I calling a bottom in mining stocks?

No, far from it. No one can predict a bottom or top and I'm not about to try. However, there has been some interesting developments in one stock that has been hammered: IAMGOLD Corp. (NYSE: IAG).

The stock is down almost 70% over the last 52 weeks, versus the S&P 500 that's up over 23% during that time period. 

The latest news to kick the stock even further down is that the company has suspended its dividend. The company spent $94 million this year on dividends, which could become a problem considering they only have approximately $361 million of cash on hand.

With their all-in sustaining cost north of $1200 per ounce of gold, this doesn't look good for the company if the price of gold continues to drop.

However, I noticed a very large trade in IAG. Someone just bought a large block of 780,000 shares combined with 20,000 $3.50 January 2015 puts.

What this trader is betting on is a very large move in the stock, one way or the other. 

As you can see on this chart, the past few years have been brutal for this stock. This large institution is now looking for a very large move by 2015, either the stock rebounds or it goes to 0.

It all depends on the price of gold. If gold drops below $1200 an ounce, IAG will be in deep trouble. If gold rebounds, so will the price of IAG. This trader is obviously looking for an extreme move, betting that at the very least they believe the price will not be $3.50 by January 2015.

This type of 'out-of-the-box' thinking is what separates top funds versus regular investors who are trying to 'predict' the future. Successful trading and investing is about understanding the probabilities, and not making predictions using some crystal ball. 

For IAMGOLD, we know that in 2014 their all-in cost is approximately $1200 an ounce, they really have no wiggle room. Some gold miners that are producing at an all-in sustaining cost below that level can still generate profits, IAG cannot.

Is it possible to make huge returns on IAmGold without having to predict if the stock will go up or down?

Click here to find out in Profit Behind The Blog to find out how Hedge Fund and Institution traders make huge returns without having to predict if a stock will go up or down

By Joel Laceda -December 17, 2013

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Commodities Markets Trading Ideas


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