Actionable trade ideas for stock market investors and traders seeking alpha by overlaying their portfolios with options, other derivatives, ETFs, and disciplined and applied Game Theory for hedge fund managers and other active fund managers worldwide. Ryan Renicker, CFA

1. April 28, 2006
Sell NEM Call Spreads, Buy PD Call Spreads
Ryan Renicker, CFA • In recent months, commodities – and stocks having exposure to them – have rallied across the
1.212.526.9425 board. This has often been accompanied by increasing implied and realized volatility in these
ryan.renicker@lehman.com names.
Devapriya Mallick
1.212.526.5429
dmallik@lehman.com • Lehman Metals & Mining analyst Peter Ward views NEM’s multiple as excessive and believes
potentially higher gold prices have already been discounted in the company’s valuation. Ward
maintains a 1-Overweight rating on PD, based on the belief that rising global copper supply will
prove difficult.
• 9-month implied volatility for NEM options is near a two-year high, while PD 9-month implied
volatility has declined sharply, indicating that longer-term risk expectations are high for NEM,
relatively low for PD. In addition, this infers NEM options are relatively “rich” and “PD” options are
rather “cheap”.
• We recommend expressing bearish views on NEM by selling the Jan ’07 60-80 call spreads, to
fund a purchase of PD Jan ’07 87.5-90 call spreads, for a net credit of about $1.90.
Lehman Brothers does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report.
Customers of Lehman Brothers in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them,
where such research is available. Customers can access this independent research at www.lehmanlive.com or can call 1-800-2LEHMAN to request a copy of this research.
Investors should consider this report as only a single factor in making their investment decision.
PLEASE SEE ANALYST(S) CERTIFICATION AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 4.

2. Equity Derivatives Strategy | Sell NEM Call Spreads, Buy PD Call Spreads
Commodities Rally, Risk Expectations Rise As Well
In recent months, commodities and stocks with exposure to them have rallied steadily for a variety of
reasons, some fundamentally driven (demand supply imbalances, liquidity, inflation concerns), others
technical (investor speculation, creation of commodity ETFs). For example, during the past 8 months
(8/30/05 – 4/27/05), gold spot prices have increased about 46.81%, while the Philadelphia
Stock Exchange Gold and Silver Index (XAU) is up 62.74% (S&P 500 up 8.38% in same time period).
Contrary to what is often seen for rallying stocks, XAU implied volatility has increased, closely tracking
its realized volatility (Figure 1). A similar pattern was observed during the later part of the technology
“bubble”, when a rise in the tech-heavy Nasdaq 100 Index (NDX) was accompanied by increasing
implied and realized volatility (Figure 2).
Figure 1: XAU Index Implied, Realized Volatility Figure 2: NDX Index, Volatility (8 Months Ending 3/31/2000)
160 40% 5,000 57%
NDX Index
38% 4,750
150 NDX 3-Month Implied 52%
4,500
NDX 66-Day Realized
36%
140 4,250
47%
34% 4,000
XAU Index Level
NDX Index Level
130
3,750
Volatility
Volatility
32% 42%
120 3,500
30% 37%
3,250
110
28% 3,000
32%
100 26% 2,750
XAU Index 2,500 27%
90 XAU 3-Month Implied 24%
2,250
XAU 66-Day Realized
80 22% 2,000 22%
05 05 5 5 5 5 06 06 06 6 6 99 99 99 9 9 9 9 00 00 00 0
g- p- -0 -0 -0 -0 -0 r-0 -9 -9 -9 -9 -0
ct ov ov ec n- n- b- ar g- p- p- ct ov ov ec n- b- b- ar
Au Se O N N D Ja Ja Fe M Ap Au Se Se O N N D Ja Fe Fe M
Source: Lehman Brothers, OptionMetrics, Bloomberg Source: Lehman Brothers, OptionMetrics, Bloomberg
Mining for Opportunities in Stocks with Commodity Exposure
NEM (Newmont Mining Corp, $56.72) has continued to trade at a multiple of over 30 times 2006
earnings, which Lehman Metals & Mining analyst Peter Ward views as excessive, considering it has
just a decade of reserves and that other commodity stocks trade at cheaper valuations1. Ward sees
gold mining costs continuing to increase and potentially higher gold prices adequately discounted in
NEM’s valuation.
Among stocks with exposure to copper, Ward has maintained a 1-Overweight rating on PD (Phelps
Dodge Corp, $81.86), based on the belief that increasing global copper supply will prove difficult
with mature mines facing shortages of labor, machinery and tires. Demand is also expected to be
higher, with China accounting for almost 23% of global demand.
PD declined 4.36% yesterday (S&P 500 up 0.33%) after reporting first quarter earnings, driven partly
by extraneous factors such as the People’s Bank of China’s decision to raise the benchmark working
capital lending rate. Lehman’s Global Economics team believes that while further tightening measures
could weigh on global commodity prices, Chinese policy makers do not aim to slow the economy
sharply2. Investors with a longer term bullish view on PD could use yesterday’s weakness as an
opportunity to get upside exposure in the stock.
1
Please see Newmont Mining: Given Strong Gold Price, Fair Results, Peter Ward, April 21, 2006 for further details.
2
Please see China: Unexpected interest rate hike is an encouraging sign, Global Economic, April 27, 2006.
April 28, 2006 2

3. Equity Derivatives Strategy | Sell NEM Call Spreads, Buy PD Call Spreads
From a volatility perspective, medium term risk expectations for gold stocks in general and NEM in
particular have continued to rise and are close to their two-year highs. However, PD 9-month implied
volatility has collapsed more than 10 vol points over the last two months. In terms of absolute volatility
levels, PD has been trading at a discount to NEM since the middle of April (Figure 4).
Figure 3: NEM 9-Month Implied Vol Near Two-Year High… Figure 4: …While PD 9-Month Implied Vol Has Declined Sharply
45% 70 45% 100
NEM 9-Month Implied Vol 90
60
NEM Price 80
Implied Volatility (9-Month)
Implied Volatilty (9-Month)
40% 40%
50 70
NEM Stock Price
PD Stock Price
60
40
35% 35% 50
30
40
20 30
30% 30%
PD 9-Month Implied Vol 20
10 PD Price 10
25% 0 25% 0
04
05
4
05
5
06
04
05
4
5
4
05
5
06
04
05
4
5
04
05
06
04
05
04
05
06
-0
-0
-0
-0
-0
-0
-0
-0
n-
n-
b-
b-
g-
g-
n-
n-
b-
b-
g-
g-
r-
r-
r-
r-
r-
r-
ec
ec
ec
ec
ct
ct
ct
ct
Ju
Ju
Ap
Fe
Ap
Fe
Ap
Ju
Ju
Ap
Fe
Ap
Fe
Ap
Au
Au
Au
Au
O
O
O
O
D
D
D
D
Source: Lehman Brothers, Factset Source: Lehman Brothers, Bloomberg
So What Should Investors Do?
Investors wishing to express a bearish view on NEM by selling call spreads could consider writing the
Jan ‘07 60 calls for about $6.10 and purchasing the Jan ‘07 80 calls for about $1.70. This results in
a premium of $4.40 and the trade finishes in the money so long as NEM finishes below $64.40 as
of the January 19, 2007 expiration date.
Part of this premium can be used to express a bullish view on PD’s relatively cheap options by
purchasing call spreads maturing in Jan ‘07. The 87.5-95 call spread was offered at $2.50, as of last
night’s close. Figure 5 shows the payoff of the combined strategy under different scenarios of NEM
and PD prices as of the Jan ‘07 expiration.
Figure 5: Expiration Payoff of Short NEM Call Spreads + Long PD Call Spreads Strategy
Source: Lehman Brothers, Bloomberg
April 28, 2006 3

4. Equity Derivatives Strategy | Sell NEM Call Spreads, Buy PD Call Spreads
Analyst Certification:
The respective research analysts responsible for the fundamental ratings hereby certify (1) that the views expressed in this research email accurately reflect our
personal views about any or all of the subject securities or issuers referred to in this email and (2) no part of our compensation was, is or will be directly or indirectly
related to the specific recommendations or views expressed in this email.
I, Ryan Renicker, hereby certify (1) that the views expressed in this research email accurately reflect my personal views about any or all of the subject securities or
issuers referred to in this email and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed
in this email.
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accurately reflect the firm's quantitative research model (2) no part of the firm's compensation was, is or will be directly or indirectly related to the specific
recommendations or views expressed in this research report.
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And may also be obtained by sending a written request to: LEHMAN BROTHERS CONTROL ROOM , 745 SEVENTH AVENUE, 19TH FLOOR NEW YORK, NY
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Mentioned Stocks
Newmont Mining (NEM - USD56.72) 3-Underweight / Positive J
Risks Which May Impede the Achievement of the Price Target: We recommend that investors sell Newmont shares. Our target is well below the current stock price.
The risks to our target are A) that investors continue to be willing to pay an extremely high multiple for earnings achievable at the current gold price and/or B) the
gold price has a significant and sustainable rally.
Phelps Dodge (PD - USD81.86) 1-Overweight / Positive J
Risks Which May Impede the Achievement of the Price Target: Our long-term forecast for copper is $1.40 per pound. The risk to our target price is that our copper
price forecast does not materialize.
Disclosure Legend:
J: Lehman Brothers Inc. or an affiliate trade(s) regularly in the shares of the subject company.
Options are not suitable for all investors and the risks of option trading should be weighed against the potential rewards.
Supporting documents that form the basis of the recommendations are available on request. Please note that the trade ideas within
this report in no way relate to the fundamental ratings applied to European stocks by Lehman Brothers' Equity Research.
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2-Equal weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12-month investment horizon.
April 28, 2006 4

5. Equity Derivatives Strategy | Sell NEM Call Spreads, Buy PD Call Spreads
3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon.
RS-Rating Suspended - The rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances
including when Lehman Brothers is acting in an advisory capacity on a merger or strategic transaction involving the company.
Sector View
1-Positive - sector coverage universe fundamentals are improving.
2-Neutral - sector coverage universe fundamentals are steady, neither improving nor deteriorating.
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April 28, 2006 5