Buy Puts on This Lackluster Gold Stock

Newmont stock is running into technical trouble on the charts

Dec 9, 2020 at 12:31 PM
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The shares of gold mining concern Newmont Corporation (NYSE:NEM) recently experienced a head-and-shoulders (H&S) breakdown on the charts, and a retest of this level looks to be failing. Moreover, the equity has also pivoted below its $50 billion market-cap level, which appears to be acting as overhead resistance now, as does NEM’s 200-day moving average. With this lack of a foundation in place, now looks like an ideal time to buy puts.

NEM Chart Dec 9

Meanwhile, calls have been particularly popular in recent weeks. This is per Newmont stock’s 10- and 50-day call/put volume ratios of 6.90 and 4.36, respectively, at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The 10-day volume ratio ranks in the 99th percentile, while the 50-day stands in the 94th -- indicating a healthier-than-usual appetite for calls of late. This has resulted in an optimistic stance amongst the brokerage bunch, with 15 out of 20 rating the equity a "buy" or better, versus five "holds."

Elsewhere, shorts are hitting the exits, evident by the fact that short interest has fallen 17.3% in the last two reporting periods. This accounts for less than 1% of the stock's total available float -- a decade low. In fact, the only lower readings were in 1996 & 2001. Our recommended put has a leverage ratio of negative 5.4 and will double on a 16.6% drop in the underlying equity.

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