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written by reader Options and Junior Miners

By Anonymous Questions, February 27, 2017

I have been reading your good work for a long time and felt guilty each and every time so I finally today broke down and subscribed for one year.

I have a couple of questions and I know you do not give investment advice so my questions are not asking for advice but more informational in nature.

1. Do you know of any market where Puts & Calls are written for stocks that have no LISTED market for those stocks ?

2. Can you direct me to anywhere in your archives that might have discussions on what history shows us happens to Junior Mining stocks in the times that the S & P crashes ?

Thank again for your good work.

Best regards,

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Travis Johnson, Stock Gumshoe

No, option trading is not available for any unlisted stocks. You could always try to find yourself a counterparty and create your own option contract with someone, but it wouldn’t be a standardized call or put option like those that trade on the major options exchanges and are handled by normal brokers — you’d have to be a large player, willing to pay substantial fees, and get the investment bankers to create something for you. Even the majority of listed stocks do not have options trading, though most larger companies do. The only way to get leverage on the upside or downside with most unlisted stocks is by using real leverage (borrowing money on margin to buy more shares, or selling shares short using margin to cover your obligation). Some foreign exchanges do have options trading as well, but it’s difficult to access for most investors, generally illiquid, and follows different rules than US options trading, so it’s easy to get burned if you dip your toe in that water.

Not all S&P crashes are the same, but the last one (2008/9) certainly coincided with bloodbaths among junior mining stocks on average — that was partly because the crash hit everything and destroyed access to capital for investors who depend on margin or leverage, and there were forced sellers of almost all assets. There aren’t great indexes to use in representing the average junior miner for prior crashes in the S&P, so there’s some conjecture involved in assessing those prior years, but generally materials stocks are highly cyclical because recessions cut demand for materials, and that filters through to a lack of enthusiasm for companies that are exploring for or. hoping to mine those materials. Sometimes gold is an exception if gold stands out as an oasis during a bad market, but during those times it might not be unusual to expect gold itself to do substantially better than junior gold miners… and, of course, a lot of junior miners are looking for (or finding) something other than gold, and the other metals and materials tend to be more sensitive to economic growth and cycles than gold is. That doesn’t mean a crash in the S&P has to coincide with a recession in the real economy — the US stock market could fall 20% next month and that, by itself, wouldn’t mean the economy is slowing or that we’re entering a recession — but the two often correlate to some degree, since the level of the stock market at any given time is really a psychological measure of the sentiment of investors.

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