Call Options are Cheap on This Bouncing Gold Stock

ABX stock has been rallying off its early March lows

May 24, 2018 at 1:11 PM
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Shares of Barrick Gold Corp (NYSE:ABX) have been trending higher since they touched a two-year low of $11.07 in early March. The gold mining stock has recently consolidated some of these gain near a trendline with historically bullish implications. And with front-month implied volatilities low, it could be time to bet on ABX's next leg higher with call options.

Taking a closer look at the charts, the stock rallied nearly 25% from its March low to its late-April peak at $13.80. ABX has since pulled back to within one standard deviation of its 40-day moving average, and according to Schaeffer's Senior Quantitative Analyst Rocky White, there have been six other times this has occurred in the last three years after the stock has been trading above the trendline 60% of the time in the past two months, and in eight of the previous 10 trading days.

abx stock price chart may 24

Today, ABX shares are up 0.8% at $13.44, rising in step with gold prices amid geopolitical uncertainty. Should the stock continue to bounce from its 40-day trendline, there's plenty of skepticism priced in, which could help fuel the fire. For starters, most analysts remain on the sidelines, with 13 of 17 maintaining a "hold" or worse rating on Barrick Gold -- leaving the door open for upgrades to draw buyers to the table.

Plus, short-term options traders are more put-heavy than usual, per the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.09 -- in the 75th percentile of its annual range. Peak front-month open interest of 37,751 contracts resides at the underfoot June 13 put, which could create a level of options-related support as the hedges related to these bets unwind.

Those wanting to bet on more near-term upside for Barrick Gold stock may want to consider options. The equity's Schaeffer's Volatility Index (SVI) of 23% ranks in the 7th annual percentile, meaning short-term options are pricing in lower-than-usual volatility expectations at the moment.


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