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Barrick Gold Corporation (USA) (NYSE:ABX) has been in recovery mode over the past month or so. During the previous 20 sessions, the precious metals producer has outpaced the broader S&P 500 Index (SPX) by a lofty 22 percentage points. What's more, since touching a 12-year low of $13.43 on July 5, the stock has gained over 44% to reach its current perch of $19.37.
The positive price action has a group of traders betting on long-term upside for ABX. So far today, 11,200 calls have traded at the January 2015 28 strike -- almost all at the ask price, indicating they were purchased. The majority of the activity occurred on a single block trade of 10,780 contracts, which occurred just before 10 a.m. EST, at the ask price of $1.99. Since open interest at the strike totals fewer than 4,800 contracts, we can assume the ABX LEAPS were bought to open.
The block trader mentioned above would start to profit if Barrick Gold were to advance past $29.99 -- that is, the strike price, plus the premium paid -- by options expiration. The upside is potentially unlimited on the transaction, since it's directly tied to the price of the underlying. By contrast, the downside is limited to the initial net debit. Meanwhile, the options market is giving the LEAPS a 2-in-5 chance of finishing in the money by January 2015 expiration, per its delta of 0.40, or 40%.
Taking a step back, however, we observe that overall sentiment on ABX is negative. Schaeffer's put/call open interest ratio (SOIR) for the equity stands at 0.83. The SOIR is just 8 percentage points short of an annual acme, which indicates short-term open interest levels within the past 52 weeks have rarely been as put-skewed as they are currently, relatively speaking.
Moreover, among the 20 analysts covering the stock, 17 slap it with a lukewarm "hold" rating, compared to just three "buy" or better suggestions. In other words, Barrick Gold Corporation (USA) (NYSE:ABX) is ripe for another round of price-target increases, which could extend the shares' recent rally.