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Option Brief: It's been a strong week for mining stocks, and Barrick Gold Corporation (USA) (NYSE:ABX) is no exception. In fact, shares of ABX are up nearly 4% on the week thus far to trade at $17.66, and today's 1.5% pop has the equity flirting with year-to-date breakeven territory. Against this backdrop, overall option volume is running at an 83% mark-up to the intraday average. Short-term options are in high demand, per the stock's 30-day at-the-money implied volatility (IV), which has jumped 4.8% to 30.4%. Diving deeper reveals that bulls and bears are seemingly split on the equity's summertime trajectory.
The most active ABX option so far is the July 19 call, where 6,785 contracts have changed hands. The majority of these went off on the ask side, and IV has edged higher -- two indications that new positions are being purchased. Based on the volume-weighted average price (VWAP) of $0.21, the call buyers will profit if ABX is sitting north of $19.21 (strike plus VWAP) at the close on Friday, July 18, when back-month options expire. Losses, meanwhile, are capped at 100% of the premium paid, should ABX close south of the strike at expiration.
Also receiving notable attention is the stock's August 16 put. A healthy portion of the 4,426 contracts traded here did so at the ask price, and IV is up 1.9 percentage points, again pointing to buy-to-open activity. At-expiration breakeven for these puts is $15.73 (strike less the VWAP of $0.27), with profit accruing on a drop all the way down to zero. Similar to the aforementioned call-buying strategy, risk is limited to the initial cash outlay, should the options expire out of the money.
Regardless of the motive of near-term option buyers, now is an opportune time to scoop up premium on Barrick Gold Corporation (USA) (NYSE:ABX) at a relative bargain. Specifically, the equity's Schaeffer's Volatility Index (SVI) of 25% ranks lower than 92% of similar readings taken in the past year, meaning premium on the stock's short-term options is affordable, from a historical perspective.