Barrick Gold Options Enticing as Stock Exerts Strength

Barrick Gold shares have been an attractive safe haven lately

Mar 22, 2017 at 10:58 AM
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Gold has been reasserting itself lately, up in each of the past four sessions following the Fed rate hike last week. Benefiting from this trend has been Barrick Gold Corp (USA) (NYSE:ABX), with the gold stock gaining 2% yesterday as traders sought out "safe havens" amid a meltdown in the broader market. Given the shares' recent show of technical strength, is it time to buy ABX call options?

Based on volatility data, the answer to that question may be a "yes." ABX sports a Schaeffer's Volatility Index (SVI) of 34%, in the low 9th annual percentile. In other words, the stock's front-month options are relatively inexpensive, from a volatility standpoint. Moreover, the shares have tended to outperform volatility expectations in the past year, based on their Schaeffer's Volatility Scorecard (SVS) of 80.

In recent sessions, options traders have been buying ABX calls over puts at an extremely rapid rate. Specifically, the gold stock's 10-day call/put volume ratio is 4.35 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Not only does this ratio indicate that four times as many calls as puts were bought to open in the last two weeks, it also ranks just 3 percentage points from a 52-week high. Stated more simply, it seems options traders expect further gains from Barrick shares -- echoing Schaeffer's Senior V.P. of Research Todd Salamone's bullish posture toward gold.

As the stock's been advancing, short sellers have been hitting the deck. During the past two reporting periods, short interest on ABX has fallen almost 28%. In fact, just 1% of the stock's float is now dedicated to short interest.

Yet, despite advancing over 41% since its mid-December lows to trade at $19.52 -- including today's 0.4% gain -- Barrick Gold Corp (USA) (NYSE:ABX) hasn't convinced everyone that it's a "buy." Specifically, nine of 13 covering analysts rate the stock a "hold" or "strong sell." From a contrarian perspective, this bodes well for shareholders and call buyers alike. If ABX keeps trekking higher, a round of upgrades could translate into tailwinds for the gold stock.

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