SK OptionTrader has long held the view that mining stocks are poor performers and has made considerable gains based on that view. Within the mining stocks sector we identified a number of over-valued companies and targeted them for a short trade, one of which was Hecla Mining. Earlier this year we used puts on Hecla Mining to generate a massive 212.5% in just 17 days, and have now followed up this trade with outright short positions that have made profits of 11.11%, 14.47%, and 31.14%.
We have held the view this year that gold will fall, and as gold falls, silver tends to follow. If both gold and silver are falling, then it is very likely that mining stocks will decrease in value as well, especially as they have been poor performers in recent years. Among those mining stocks is a company that has recently taken on a massive amount of debt relative to its market cap, and that is a high cost silver producer. This company is Hecla Mining.
Having these factors in mind, we chose to take a considerable short position on the stock. We also held the view that gold and silver prices could well move sideways or simply decrease slowly, perhaps even stage a small rally, and therefore chose a position without a time premium component, deciding to short the stock outright.
In March we allocated 5% of our portfolio to this short, selling at $3.95. After both gold and silver crashed in April, we believed that it would be even harder for this company to make a profit. As the stock price stabilised through the end of April and beginning of May we began to take the view that Hecla Mining was still considerably overvalued, and thus we tripled our short position at $3.18.
When the stock price showed a small rally we simply held our position as the fundamentals suggested that the stock was over-priced, and with an outright short position we could ride out any rally as we had planned. Following the rally we added a further 5% of our portfolio to the short position, entering the trade at $3.05.
As mining stocks failed to fall along with gold and silver prices towards the end of June, we re-evaluated our view on them. It was our view that the risk reward dynamics of our short HL position were no longer in our favour, and subsequently we chose to exit all of our positions on the stock at $2.72, yielding us a returns of up to 31.14%.
Alongside this trade we also held a short position on Coeur d'Alene that made returns of 14.45%, and an overall short position on gold that made 25.78%. With these trades closed our overall return for the year has been boosted to 55.58%.
All 20 of our closed trades this year have been at a profit, which have brought our year to date return on closed trades up to 55.58%. Our model portfolio has returned a total of 727.54% since its inception nearly 4 years ago, and of our 133 trades 87.97% have been profitable. We are currently making considerable gains from the decline in gold prices and we have an annualised return of 71.76%. If you want to find out how what trades that we will be making next then all you have to do is sign up via the buttons below.
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