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Aggressive Option Bulls Eye Barrick Gold Corporation (USA) (ABX)

Barrick Gold Corporation's (USA) July 20 call took center stage yesterday

by 5/22/2014 9:20 AM
Stocks quoted in this article:

Barrick Gold Corporation (USA) (NYSE:ABX) call volume outstripped put volume by a greater than 5-to-1 margin yesterday. In fact, eight of the 10 most active strikes were on the call side of the fence. Taking the top position was the July 20 call, where 8,100-plus contracts were exchanged, primarily as a 7,316-contract sweep in early trading.

All of the volume at that out-of-the-money strike crossed at the ask price, and open interest soared overnight, together hinting at newly bought bullish bets. Meanwhile, data from the International Securities Exchange (ISE) confirms considerable buy-to-open activity. This is par for the course, as far as ABX options trading goes. During the past 50 sessions on the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the mining stock has racked up a call/put volume ratio of 6.59. Not only does this figure indicate calls have been bought to open at more than six times the rate of puts in recent months, but it also registers just 4 percentage points from an annual bullish acme.

In the case of Wednesday's traders, the expectation is for Barrick shares to rally beyond $20 by July options expiration, about two months from now. Specifically, if the equity is sitting north of breakeven at $20.09 (strike plus the volume-weighted average price of $0.09) when the calls cease trading, the buyers will profit. However, if the contracts expire out of the money, the speculators will part with the initial premium paid, assuming they're still holding onto the calls.

In yesterday's session, Barrick Gold Corporation (USA) (NYSE:ABX) added 0.7% to close at $16.76, meaning the shares must gain over 19.3% to reach in-the-money territory. Historically, the equity hasn't explored territory above $20 since mid-March. Elsewhere, on the fundamental front, ABX reaches its ex-div date next Wednesday, May 28.

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