Bargain hunters turn to Barrick Gold
David Russell | [email protected]
optionMONSTER's Heat Seeker program showed the heavy volume in the April 39 calls, with large blocks pricing for $0.63. More than 13,700 contracts traded by the end of the session, compared with previous open interest of just 3,832, so these are new positions.
These long calls lock in the price where investors can buy shares. They can generate significant leverage to their underlying share price because options are much cheaper than stock. But if the shares don't move, these contracts can also expire worthless. (See our Education section)
ABX fell 2.65 percent to $34.50 yesterday. Shares of the gold and copper producer declined steadily between September 2011 and last July. Since then the stock has returned near those summer lows, but this time it's holding its ground.
Yesterday's option traders apparently think that Barrick is ready to rebound, but they don't want to risk paying the full stock price to get long. Instead, buying them calls will let them cheaply play for a bounce.
Our scanners have picked up similar bullish trades in other miners in recent weeks, including Turquoise Hill Resources, Iamgold, and AngloGold Ashanti.
Total option volume in ABX was more than twice its daily average yesterday, with calls outnumbering puts by 6 to 1.
(A version of this post appeared on InsideOptions Pro yesterday.)