Option Sellers Flock to Booming Barrick Gold Corporation (ABX)

Gold stocks are outperforming today following the "Brexit" vote, and Barrick Gold Corporation (USA) (NYSE:ABX) is no exception

Jun 24, 2016 at 12:16 PM
facebook twitter linkedin


Barrick Gold Corporation (USA) (NYSE:ABX) has caught fire, as traders rush to safe-haven investments amid the "Brexit"-sparked meltdown in stocks. At last check, the gold stock has shot nearly 5% higher to trade at $20.29, while its options pits have exploded. Specifically, intraday put volume is running in the 100th annual percentile, and at five times the usual intraday rate.

However, the put activity doesn't appear to be bearish in nature -- understandable, given ABX's technical track record. Rather, it looks like a series of huge blocks were sold to open earlier at the out-of-the-money July 18 put. In other words, at least one trader is banking on the stock maintaing its perch atop $18 through front-month expiration, at the close on Friday, July 15. The last time ABX settled a week south of the strike was May 27, and delta on the put is negative 0.17. This suggests a less than 1-in-5 chance of an in-the-money finish -- favorable odds for the put sellers.

At the same time, it doesn't look like a great time to sell premium on short-term ABX options. The stock's Schaeffer's Volatility Index (SVI) of 53% ranks in the bottom one-third of all readings taken in the past year. Plus, the options market has tended to underprice ABX's ability to make outsized moves in the last 12 months, based on its Schaeffer's Volatility Scorecard (SVS) of 92.

Stepping back, options traders have been gravitating toward puts over calls lately, but not in the same way as today's speculators. As we discussed yesterday, put buying has accelerated in recent weeks, some of which could be the work of shareholders hedging against a surprise pullback.

After all, Barrick Gold Corporation (USA) (NYSE:ABX) has been outperforming the broader market, even before today. So far in 2016, the gold stock has rocketed 175% higher, while the broader S&P 500 Index (SPX) has seen nearly all of its gains wiped out by today's "Brexit" beatdown.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 
Special Offers from Schaeffer's Trading Partners