Options Heat Up as Barrick Gold Corporation (USA) (ABX) Gets Set for Earnings

Barrick Gold Corporation (USA) (NYSE:ABX) will report earnings after tomorrow's close, and options volume is accelerated ahead of the event

Oct 25, 2016 at 3:08 PM
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Earnings season has kicked into high gear, and precious metals miner Barrick Gold Corporation (USA) (NYSE:ABX) is slated to take its place in the earnings confessional after tomorrow's close. Ahead of the scheduled event, the gold stock is up 2.8% at $17.00, amid reports two Chinese mining firms are looking to take a stake in Barrick Gold's Veladero gold mine in Argentina. And while pre-earnings options traders appear to be betting on more upside, longer-term options traders are bracing for an end-of-year slump for ABX stock.

Drilling down on today's options activity, around 22,000 ABX calls have traded, compared to 15,000 puts -- a slight uptick to what's typically seen at this point in the day. On the call side, options traders are targeting the weekly 10/28 17 strike, where it looks as if new positions are being purchased. In other words, call buyers expect ABX to extend its lead north of $17 by this Friday's close, when the weekly options expire.

Meanwhile, with 4,647 contracts traded so far, ABX's December 15 put has seen the most action today, and all signs suggest these puts are being bought to open. If this is the case, the goal for put buyers is for ABX to breach $15 by the time the options expire at the close on Friday, Dec. 16. This comes just two days after the Federal Reserve is scheduled to deliver its last policy decision of 2016, with gold prices often tied to interest rates.

From a wider sentiment perspective, options traders have been initiating long puts relative to calls at a faster-than-usual clip in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ABX's 10-day put/call volume ratio of 0.74 ranks higher than 64% of comparable readings taken in the past year. Plus, with 445,051 contracts outstanding, put open interest is in the 82nd annual percentile.

Now appears to be an opportune time for options buyers to strike, too. ABX's Schaeffer's Volatility Index (SVI) of 45% rests in the 15th percentile of its annual range, suggesting low volatility expectations are priced into the stock's near-term options. Plus, the security's Schaeffer's Volatility Scorecard (SVS) of 92 indicates the options market has historically underpriced ABX's ability to make big moves on the chart over the past 12 months.

Technically, ABX has put in a strong showing in 2016 -- boasting a 130% year-to-date lead. More recently, the shares of Barrick Gold Corporation (USA) (NYSE:ABX) pulled back after hitting a three-year high of $23.47 in early July, but found a foothold near the $15.50 mark -- home to their March highs -- and bounced.

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