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Traders Take a Shine to Barrick Gold Corporation (USA) (ABX) Calls

ABX fans are picking up soon-to-be front-month call options

by 7/15/2013 11:22 AM
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Barrick Gold Corporation (USA) (NYSE:ABX) is up 1.1% at $15.10 this morning, after touching a multi-year low of $13.43 earlier this month. What's more, option traders are gambling on an extended rebound for the beleaguered commodity concern, picking up back-month calls at a rapid-fire rate.

So far today, ABX has seen roughly 19,000 calls change hands -- a 24% mark-up to its average intraday volume, and about four times the number of puts exchanged. Most active has been the August 16 call, which has seen more than 4,500 contracts cross the tape at a volume-weighted average price (VWAP) of $0.64. Almost two-thirds of the calls have traded on the ask side, and implied volatility is trending higher, hinting at newly bought bullish bets.

To profit on their call purchases, the buyers need ABX to conquer $16.64 (strike price plus VWAP) by options expiration on Aug. 16 -- which encompasses the company's turn in the earnings confessional on Aug. 1. Barrick Gold has missed the Street's per-share profit estimates in three of the past five quarters, averaging a loss of 3.3% in the three days after earnings. However, should ABX remain south of the strike through expiration, the most the buyers are risking is the initial premium paid for the calls.

That's not to say ABX options are cheap at the moment. The stock's Schaeffer's Volatility Index (SVI) has ascended to 52%, and now stands higher than 71% of all other readings of the past year. In other words, ABX's short-term options are relatively pricey right now.

From a sentiment perspective, today's appetite for long calls is just more of the same. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security sports a 10-day call/put volume ratio of 3.72. This ratio registers in the 80th percentile of its annual range, suggesting option traders have bought to open ABX calls over puts at a faster-than-usual pace during the past two weeks.

It's worth noting, though, that short interest shot 56% higher during the most recent reporting period. Against this backdrop, it's possible that Barrick Gold Corporation (USA) (NYSE:ABX) short sellers are picking up long calls to hedge their bearish bets.


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