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I've been bullish on gold mining stocks since I first started publishing on Seeking Alpha 5 years ago, and while playing the commodity itself has rewarded investors, profiting from gold mining stocks has been a lot trickier than buying and holding.

While gold has rocketed in price, the move in mining stocks has been muted in comparison. I have discussed the use of options in past posts to take advantage of the high volatility inherent in gold investing. Last week afforded me two opportunities to make use of this strategy.

I last mentioned Yamana Gold (NYSE:AUY) a few weeks back in summarizing my year-to-date portfolio performance. At the time, AUY was trading right around $17, which was the strike price of my April 2012 covered calls. Since then, shares have fallen to $15.32. The price drop combined with the accelerated time value decay as options approach expiration allowed me to roll my $17 covered calls out to October for a net credit of $0.95.

This equates to a 6% premium (10% annualized) based on today's closing price. If AUY should fall further from here, the 6% premium defers some of the pain. If the stock holds above $17 by expiration, I am satisfied with cashing out at $17, a 15% total gain once the call premium is factored in.

While AUY is trading around my fair value for the stock, Allied Nevada Gold (NYSEMKT:ANV) looks cheap. When I last discussed the stock, I found ANV an intriguing prospect mainly on the grounds that Seth Klarman, perhaps the greatest value investor in current times and not a gold bug, had opened a position. The company had great resource potential, and Klarman's implicit endorsement was almost enough to get me into ANV but I wasn't comfortable with the fact that most of Allied's assets were not categorized as proven and probable (P+P), the most reliable class of resource.

But in roughly a year's time, ANV has moved from 2.6M oz of P+P gold to 12.7M oz, with a similar huge jump in silver resource. Additionally, these resources are based on $800 gold and $14 silver, more than 50% below current prices. With the big bump in P+P resource, ANV looks much more attractive as an investment.

Surprisingly, the stock is selling below the price when Klarman disclosed his first ANV purchase. Last week, I took advantage of this situation to sell ANV $30 Jun 2012 naked puts for $1.80, collecting a 6% premium on the capital committed while allowing 11% downside protection to its current trading price above $31.

If shares should fall below $30, I am obligated to buy the stock but my adjusted entry price would be below its 52-week low. If shares remain above $30, I pocket the 6% premium. Since time value decay accelerates in the last 90 days of an option contract, I may get the opportunity to profitably close the trade before June. My biggest worry is the stock may move up without me opening a position. As such, I may buy shares in addition to selling the naked puts.

Source: 2 Ways To Play Gold Miners Yamana And Allied Nevada