Barrick Gold Corporation (USA) (ABX) Rally Draws a Rare Batch of Option Bears

Barrick Gold Corporation (USA) (NYSE:ABX) is surging with gold prices, yet one options trader is betting on a quick retreat

Jan 5, 2017 at 1:32 PM
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Gold prices are getting a lift today, as the stock market trades lower and the U.S. dollar retreats from 14-year-high territory. The malleable metal's rise is helping boost gold stocks, like Barrick Gold Corporation (USA) (NYSE:ABX) -- which is trading up 6.2% at $17.42. Nevertheless, put options are trading at an accelerated clip in ABX's options pits, with one speculator apparently eyeing a steep near-term retreat for the gold mining shares.

Specifically, the February 16 put is easily ABX's most active option today, with 10,877 contracts on the tape so far -- nearly 16% of the day's total intraday volume. According to Trade-Alert, the majority of the action here is a result of a multi-exchange sweep of 10,001 contracts that was bought to open for $610,061 (number of contracts * $0.61 premium paid * 100 shares per contract).

This is the most the trader stands to lose, should the puts expire out of the money. Profit, meanwhile, will accumulate on a move below breakeven at $15.39 (strike less premium paid). Given ABX's present perch, this would require a roughly 11.7% drop in the shares by back-month options expiration at the close on Friday, Feb. 17.

More broadly speaking, the withstanding trend in ABX's options pits has been toward calls. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 205,609 calls on ABX in the past 50 days, compared to 117,146 puts. In fact, the resultant call/put volume ratio of 1.76 ranks in the elevated 73rd annual percentile.

Additionally, ABX's Schaeffer's put/call open interest ratio (SOIR) of 0.63 arrives lower than 80% of all comparable readings taken in the past year. Simply stated, short-term speculators are more call-heavy than usual toward the gold stock.

However, there are signs of skepticism outside of the options pits -- which could work in ABX's favor, should the stock continue to gain ground on the charts. Short interest, for instance jumped more than 11% in the two most recent reporting periods to 20.23 million shares -- the most since early September. Plus, 71% of covering analysts maintain a "hold" or worse recommendation.

And while the stock did fall off dramatically along with gold prices in the latter half of 2016, it has been making a solid attempt at technical redemption since basing in the $14-$15 neighborhood in mid-December -- roughly two times its 2015 close. In fact, the shares of Barrick Gold Corporation (USA) (NYSE:ABX) have surged more than 25% since then, reclaiming a foothold atop previous resistance at the 80-day moving average in the process. Should ABX maintain this momentum, a capitulation from shorts and/or a round of upgrades could translate into a fresh burst of buying power.

abx daily since january 2016

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