Traders Eye Compelling Newmont Mining (NEM) Options Trade

For stakeholders of gold powerhouse Newmont Mining (NEM), the Trump administration has provided two cynical catalysts. First, the President’s prosecution of perceived trade imbalances, along with other matters of economic and geopolitical importance, has helped trigger safe-haven demand. Second, Trump’s insistence that the Federal Reserve implement a dovish monetary policy has driven forward inflation expectations, which should be helpful to NEM stock.

Since the beginning of this year, Newmont shareholders have witnessed their position rise by roughly 65%.

In the trailing month, NEM stock moved up about 8%, reflecting sustained optimism. At the same time, it’s reasonable to wonder about a potential pullback. Generally, the market doesn’t move in a linear manner. Furthermore, given NEM’s unusually robust performance relative to historical norms, earlier stakeholders may be inclined to take some profits off the table.

While it’s not an irrational position, for options traders, including myself, NEM stock can provide rewards for those willing to stick with a Bullish long-side narrative. The justification for bullishness isn’t focused on the fundamentals — or the opinions of such — but rather Newmont Mining’s statistical backdrop.

Setting the Stage for Applied Game Theory

Even under ideal conditions, building a case for an options trade is challenging due to its multidimensional nature. First, the price target—whether bullish or bearish—must be clear and specific; vague ideas like “undervalued” or “underappreciated” won’t cut it. Second, the thesis must account for timing, as options are time-sensitive instruments with defined expiration dates.

In my view, crafting a solid options strategy calls for a practical application of game theory—a framework that helps identify favorable setups for placing bets while also flagging statistically poor trades to avoid. That said, explaining these concepts using academic jargon can be unnecessarily complex. A simple thought experiment is often a more effective way to illustrate the idea.

Imagine flipping a coin a hundred times every day. What you flip on Monday will have no bearing on what you flip on Tuesday, for the apparent reason that tossing a coin in the air represents a random event. Therefore, no useful information can be gleaned from studying past analogs and their statistical tendencies.

By the same logic, if the market were random, Monday’s positive session would have no bearing on Tuesday’s result. Studying past analogs would be meaningless, as, irrespective of the time interval, the chance of an upside would be equivalent to a coin flip (around 50%).

However, that’s not what we observe. In the case of NEM stock, since January 2019, if we convert and categorize its price action into market breadth — or sequences of accumulative and distributive sessions — across 10-week rolling sequences, we get the following demand profile:

Statistics table showing sequences of Up (U) and Down (D) in daily NEM stock pricing. Credit: Joshua Enomoto

While the table above may look unusual, it confirms what we inherently understand to be true: the market is not random. Again, if it were, it wouldn’t matter what sequence NEM stock is flashing in the past 10 weeks, as the upside probabilities would coalesce around 50%.

That’s not what’s happening. Instead, some sequences very clearly favor the bulls; others favor the bears. The point about using game theory is to act when the empirical and expected behavioral framework favors you.

Using Math to Formulate an Options Strategy for NEM Stock

Within the framework of market breadth, over the past two months, NEM stock has produced a 7-3-U sequence: seven up weeks, three down weeks, with a positive trajectory across the 10-week period. This pattern has occurred 54 times over the past six and a half years. Most significantly, in 61.11% of cases, the following week’s price action results in upside, with a median return of 3.39%.

Last Thursday, NEM stock closed at $60.13. If the implications of the 7-3-U sequence pan out as projected, NEM could hit around $62.17 in short order. Further, if the bulls maintain control of the market for a second week, traders may anticipate approximately 0.56% of added performance. Overall, NEM could potentially rise above the $62.50 mark over the next two to three weeks.

Adding to the enticing setup, the statistical response to the 7-3-U sequence offers greater odds than the baseline. On any given week, the chance that a long position in NEM stock will rise is 53.08%. At this moment, then, traders are receiving 8.03 percentage points of favorable odds.

Bullish NEM Options Strategy in Practice

Such a backdrop incentivizes a debit-based strategy. A compelling idea to consider is the 60/62.50 bull call spread, expiring August 15. This transaction involves buying the $60 call and simultaneously selling the $62.50 call, resulting in a net debit paid of $1.14 (the maximum loss that can be incurred in the trade). Should NEM stock rise through the short strike price ($62.50) at expiration, the maximum reward is $136, a payout of over 119%.

Essentially, this trade allows for roughly five weeks for the above bullish narrative to unfold. That’s a generous safety cushion for such a high payout, making this wager one to watch.

Is NEM Stock a Good Buy Now?

Turning to Wall Street, NEM stock carries a Moderate Buy consensus rating based on eight Buys, five Holds, and zero Sell ratings over the past three months. The average NEM stock price target is $65.99, implying 8.5% upside potential over the next twelve months.

See more NEM analyst ratings

Leveraging the Power of Logic to Trade Newmont Stock

While Newmont Mining could potentially benefit from compelling fundamental narratives, options traders also have something to look forward to. Specifically, by converting the noisy price action of NEM stock into “market breadth sequences,” we can more easily decipher quantitative patterns and act logically based on their implied projections.