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What's Behind Agnico-Eagle's Spike?


Implied volatility jumps in the miners may presage turns.

On yesterday's news, interesting move in Agnico-Eagle Mines (AEM). Haven't seen a red flag like that since Zidane headbutted that Italian guy in the World Cup (and technically that's a red card, but whatever).

We've seen many "outside" days in various names all throughout the rally. Anecdotally though, I haven't seen any moves halt in their tracks -- more like stall for a day or two.

But there's a twist this go around. The Agnico pop was accompanied by a big spike in implied volatility. Do spikes in the miners presage turns? Steve Place suggests yes, and I'd tend to agree. I short put spreads in a handful of spots each cycle, and this happened to be one of them (love throwing in after-the-fact good trades!). But in light of all this, started shorting some call spreads here yesterday. And will look to leg some more between here and the upper 60s.

Just a side note: You know the conventional wisdom that volatility moves inversely to stocks? It doesn't work all that well outside of indices. You get situations like Apple (AAPL) where the move up is so slow and incremental that volatility drifts. But you also get a fair shares of situations like this where a break to the upside tends towards the violent side. At the end of the day, implied volatility is about volatility, and not direction per se.
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