Newmont Follow Up

Past few days have really flown by. Much of my extended family has been visiting from the East Coast and we have shared in some monster feasts. As far as the portfolio goes there is only one remaining position left - that is the 10 contracts of Newmont Mines call options expiring on January 20, 2006 with a $50 strike price.

As of Friday the contracts last traded at about $2.83, with the underlying stock trading closing at about $51.94. We have previously discussed the two main components of option value - 1) intrinsic value and 2) time premium. As options approach their expiration date the time premium quickly decreases in value as it becomes less and less likely that the underlying security will make a large move from the current price. Currently it looks like these options have about $1.90 of intrinsic value in them and about $0.95 of time premium. I do not expect the time premium to fall below $.20 prior to expiration, just because the underlying security being somewhat correlated with the gold price has been very volatile.

Right now I am trying to figure out the exit strategy or perhaps the maintaining strategy? I continue to be bullish on Gold out over the coming months and years as I think that our government needs to maintain a healthy rate of inflation in order to meet many of our obligations in if not real, then at least nominal terms - re: pension, social security, medicare, etc. In that type of environment I think gold can perform very well. Still I have to balance those longer term prospects against a possible further correction in the mid-term and the fight to maintain the few nickels of profit that I have left in the position.

The stock pattern is apparently bullish as it looks like Newmont has broken out of a long-term (multi-year) basing pattern on decent volume/accumulation and may be heading higher:

Gold and the mining stocks often give false moves though and are very tricky to follow. The metal's price movement is largely driven by speculators. Here is the recent gold price chart which has corrected quite a bit from the high of $530s that was hit several weeks ago:

It looks like the metal has found some support in the $490-500 range and may begin to consolidate and build another base before trading significantly higher or lower. The prices of the miners did not make as large of a move relative to the metal on the recent rally, but they have not corrected as much either during the recent drop in the metal.

I think that is a good summary of what has been happening in this market, but I still don't know how to play the final hand. I will keep the blog updated as I liquidate the position or roll it over. I think maybe the biggest challenge is my own previous high hopes for the position as I thought that Newmont Mines could run into the $60 area. Instead it has been a fight to hold $50 - and probably is a good indication that I am in over my head.

I hope everyone has one last great day to finish up the holiday weekend and I will check back later this week/ next weekend with some updates on the position and also some ideas for 2006.

Best Regards,

BG