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Although Barrick Gold Corporation (USA) (NYSE:ABX) has plunged 26% from its Feb. 24 year-to-date closing high of $21.23, and yesterday settled at $15.69 -- its lowest close in 2014, option players have been scooping up calls at a rapid-fire rate. During the past 50 sessions at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has chalked up a call/put volume ratio of 6.62, which ranks in the 94th percentile of its annual range. Simply stated, calls have been bought to open over puts with more rapidity just 6% of the time within the past year.
It was a similar backdrop on Wednesday, where calls traded at more than two times the typical rate, and outpaced puts by a nearly 4-to-1 margin. More than one-third of the day's call volume centered on the January 2016 25 strike, where 20,314 contracts traded, including one large block of 9,756. Nearly all of these calls went off at or above the ask price, and the vast majority of the volume translated into open interest overnight, making it safe to assume that new positions were purchased.
Specifically, the volume-weighted average price (VWAP) for the LEAPS options was $0.63, making at-expiration breakeven $25.63 (strike plus VWAP). In other words, ABX needs to be sitting above this mark at January 2016 options expiration in order for the traders to profit. Gains, meanwhile, are theoretically unlimited with each additional move north of here. Risk, however, is limited to the initial cash outlay, should ABX land south of the strike price at expiration. At last night's close, delta for the call was docked at 0.19, suggesting a less than 1-in-5 chance of an in-the-money finish.
As noted, Barrick Gold Corporation (USA) (NYSE:ABX) has put in a dismal technical performance of late. In the near term, though, the stock could be poised for a bounce, considering its 14-day Relative Strength Index (RSI) of 27 signals that ABX has moved into oversold territory. Off the charts, the company said yesterday it has reached a preliminary agreement with a Chilean indigenous tribe over pending construction of its Pascua-Lama mine.