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Barrick Gold's Gap Higher Garners Attention from Call Players

ABX traders are employing calls to place both bullish and neutral-to-bearish bets

by 6/29/2012 1:07 PM
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The shares of Barrick Gold Corporation (NYSE:ABX - 37.37) have followed gold futures into the black, which has attracted the attention of short-term call speculators. So far today, the commodity concern has seen roughly 38,000 calls change hands -- about four times its average intraday call volume, and more than seven times the number of ABX puts traded.

Digging deeper, we find that most of the action has centered on the July 41 and August 38 calls, which have seen around 12,000 and 10,100 contracts cross the tape, respectively. What's more, volume has exceeded open interest at both strikes, hinting at a flood of fresh position. However, while most of the August-dated calls traded at the ask price, suggesting they were bought, the bulk of the July-dated calls changed hands at the bid price, pointing to seller-driven volume.

By purchasing the August 38 calls to open, the buyers are expecting ABX to power north of $38 within the next couple of months. On the flip side, the sellers of the out-of-the-money July 41 calls are betting on ABX to remain south of the $41 level through front-month expiration. In this best-case scenario, the calls will expire worthless, allowing the sellers to pocket the entire premium received at initiation.

From a broader sentiment standpoint, calls already comfortably outnumber puts among the front three months of options, as evidenced by the security's Schaeffer's put/call open interest ratio (SOIR) of 0.40. Furthermore, this ratio stands just four percentage points from an annual nadir, implying that near-term options traders have rarely been more call-heavy on ABX during the past year.

However, up until today, the sentiment tide appeared to be shifting toward the bearish camp. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.60 registers in the 74th percentile of its annual range. In other words, options traders have bought to open ABX puts over calls at a faster-than-usual pace during the past couple of weeks.

Technically speaking, ABX has added about 3.1% to flirt with the $37.37 level. From a longer-term perspective, though, the equity just tagged a two-year low of $34.82 in mid-May, and its recent rebound attempts have been halted by its descending 80-day moving average.

Daily Chart of ABX since March 2012 With 80-Day Moving Average


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