Schaeffer's Trading Floor Blog

Bearish Betting Accelerates on Barrick Gold Corporation (USA) (ABX)

Or are ABX shareholders locking in gains?

by 9/17/2013 11:16 AM
Stocks quoted in this article:

Since touching a 12-year low of $13.43 in July, Barrick Gold Corporation (USA) (NYSE:ABX) has stair-stepped 35.7% higher to $18.23. However, option traders are picking up puts at a near-annual-high clip, suggesting speculators are either rolling the dice on a pullback for ABX, or are locking in profits on their long stock positions.

On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the commodity concern sports a 10-day put/call volume ratio of 0.82 -- higher than 92% of all other readings of the past year. Or, in simpler terms, option traders have picked up ABX puts over calls at a faster clip just 8% of the time during the last 52 weeks.

Echoing that, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.89 also registers in the 93rd percentile of its annual range. In other words, near-term option traders have rarely been more put-heavy over the past 12 months.

In the October series of options -- which assumes front-month status after the closing bell on Friday -- peak put open interest sits at the out-of-the-money 17 strike, with more than 20,200 contracts in residence. Meanwhile, the deeper out-of-the-money October 15 strike harbors more than 19,600 puts outstanding, and the even deeper out-of-the-money October 7 put has gotten some play, with almost 1,200 contracts added during the past two weeks.

Assuming a healthy portion of the puts were bought to open, the traders could be protecting their ABX shares. By purchasing the puts, the speculators lock in an acceptable price at which to sell their shares (the strike price), should ABX take a turn for the worse and breach the strike by expiration. The buyers' primary goal, however, remains for ABX to extend its uptrend, as they're shareholders above all else.

The mood isn't as ambiguous elsewhere on the Street. Just three out of 19 analysts offer up "buy" or better opinions on ABX, which has outperformed the broader S&P 500 Index (SPX) by 7 percentage points during the past two months. In fact, the stock is trending higher this morning, despite ongoing drama in the boardroom.

Should Barrick Gold Corporation (USA) (NYSE:ABX) continue to stair-step higher, an unwinding of puts in the options arena, or a wave of upbeat analyst attention, could translate into contrarian tailwinds for the shares.

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