Call Options Stay Hot on Underperforming Newmont Mining Corp (NEM)

Some Newmont Mining Corp (NEM) call players are taking a longer-term view

Dec 28, 2016 at 11:47 AM
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Newmont Mining Corp (NYSE:NEM) spent the first part of 2016 running up the charts, snagging a new three-year high of $46.07 in August. Since then, however, the gold stock has been stair-stepping lower amid the precious metal's seven-week losing streak. Today, though, NEM is up 0.3% at $32.68. Sentiment toward the stock has been fairly upbeat lately, despite its technical troubles, but today's speculators seem to be of split opinions.

NEM call options are trading at double the expected rate for this point in the day, outnumbering puts by a more than 4-to-1 clip. Leading the action is the January 2018 55-strike call, where it appears a sweep of 2,828 contracts was sold to open. If so, the call writer is betting NEM won't hurdle the deep out-of-the-money (OOTM) strike any time in the next 13 months.

On the other hand, the second most popular option today is the June 44 call, where one trader bought to open a sweep of 2,000 contracts, according to Trade-Alert. The OOTM call buyer is betting on a roughly 35% rally for NEM within the next six months.

A preference for long calls has been the prevailing trend in NEM's options pits recently. In fact, 2.60 calls have been purchased for each put over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- a call/put volume ratio in the 90th percentile of its annual range. Call traders seem to be setting their sights relatively high, too -- the deep OOTM June 45 call saw the largest rise in open interest over the last two weeks.

Meanwhile, it appears to be a prime time for near-term options buyers to pounce on NEM. The stock's Schaeffer's Volatility Index (SVI) of 41% is seated in the low 18th percentile of its 12-month range, indicating premium on short-term options is relatively inexpensive. Plus, NEM holds a Schaeffer's Volatility Scorecard (SVS) of 88, suggesting NEM has tended to make larger moves than the options market has priced in during the previous year.

Outside of the options pits, sentiment toward NEM is skewed in a bullish direction. Three-fifths of the analysts following the security rate it a "buy" or better, and not one holds a "sell" opinion. Short interest also dropped during the most recent reporting period, and currently accounts for a mild 2% of NEM's total float.

From a technical standpoint, however, these optimists may want to be wary. Newmont Mining Corp (NYSE:NEM) has been running into resistance near its 40-day moving average lately. And after a recent bounce off one key retracement level, the shares have failed to break out above the 38.2% Fibonacci retracement of their late-2015 lows and 2016 highs.

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