Friday, June 8, 2012

Pan American Silver’s Stock Can Shine With Minefinders Takeover

Yesterday�s news from the Federal Open Market Committee that it plans to leave interest rates alone until at least 2014 gave the markets a boost, and gold and the precious metals in particular benefited.

One stock that went along for the ride after the Fed made its statement was Pan American Silver Corp. (NYSE:PAAS), which engages in the exploration, development, extraction, processing, production, refining, reclamation and operation of silver properties.

This Vancouver-based company also produces and sells gold, zinc, lead, and copper. As of April 27, 2011, it had seven silver mining operations in Mexico, Peru, Argentina and Bolivia.

PAAS just completed an acquisition of Minefinders (NYSE:MFN) for nearly $1.5 billion in cash and stock. The deal gives PAAS the Dolores Mine in Mexico (one of the lowest-cost, longest-lived silver mines), and makes PAAS one of the world’s largest silver producers.

While MFN enjoyed a nearly 25% pop on the news, PAAS stock was met with a nearly 9% drubbing, putting the shares back toward the lows of the year. Before yesterday�s bullish movement, PAAS was trading at its lowest level in relation to spot silver since the financial crisis of 2008.

Over the past year, silver has rallied 20%, while PAAS has sold off nearly 30%. We look for this relative valuation gap to converge, with PAAS being a relative out-performer to silver.

Given a slightly bullish outlook over the next several months, I look for PAAS to move back to the $24 level by July expiration.

Based on PAAS� current market price of $22.37 and using a target price of $24, a target date of July 20, 2012, and $1,000 of investment capital, you can capture some nice gains by selling a July put spread, buying a July call spread or using another options strategy that best fits your trading style and goals.

For the full details on this trade, visit TradingBlock.com, create a free Instant Login and try the TradeBuilder feature, where you�ll see several ways to trade this name. Best of all, you can see a potential profit-and-loss outline for each strategy.

Create your free login, and get access to the details about these PAAS options trading strategies by visiting the TradeBuilder here.

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