Pre-Fed Put Buying Picks Up On Barrick Gold Corporation (USA) (ABX)

Barrick Gold Corporation's (USA) (NYSE:ABX) October 16 put is being bought to open today

Sep 15, 2016 at 3:34 PM
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Barrick Gold Corporation (USA) (NYSE:ABX) is up 4.5% at $17.96, after the gold producer said operations at its Veladero mine in Argentina have been temporarily suspended following last week's cyanide spill. Nevertheless, put volume has popped on the gold stock, with the contracts crossing at nearly two times the average intraday rate -- and one ABX speculator taking a defensive stance ahead of next week's Fed meeting.

Drilling down, ABX's October 16 put has seen the most action so far, with 15,726 contracts on the tape. Almost all of this activity is the result of one trader buying to open a 14,806-contract block of the out-of-the-money back-month puts for an initial net debit of $888,360 (number of contracts * $0.60 premium paid * 100 shares per contract). In other words, the put buyer expects ABX stock to sink below $16 by the time the options expire at the close on Friday, Oct. 21.

Put buying is nothing new in ABX's options pits, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.97 ranks in the 85th annual percentile. In other words, puts have been bought to open relative to calls at a faster-than-usual clip.

Meanwhile, ABX currently sports a top-heavy gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 1.54. Simply stated, near-the-money puts easily outweigh calls among options expiring in three months or less.

Technically, though, ABX has been a standout on the charts, tacking on almost 166% year-over-year. Plus, although the stock pulled back after notching a three-year high of $23.47 in early July, it quickly found a familiar foothold in the $16.75-$17.00 range -- home to its April highs, as well as a 38.2% Fibonacci retracement of its July high and its 25-year low of $5.91 from last September.

As such, it's possible some of the recent put buying is of the protective kind -- especially considering gold stocks could be particularly vulnerable to the outcome of next week's big Federal Reserve policy-setting meeting. Regardless, it's a prime time for short-term options buyers to strike on Barrick Gold Corporation (USA) (NYSE:ABX). The equity's Schaeffer's Volatility Index (SVI) of 48% ranks in the 21st annual percentile, meaning ABX's near-term options are priced at attractive levels, from a volatility perspective.

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