Options Trading News

January 22, 2013  Tue 3:16 AM CT

Barrick Gold has been trapped in a range for the last two months, and one bullish trader is buying more time for shares to break out.

optionMONSTER's Heat Seeker system shows that the trader sold 5,425 April 36 calls for an average price of $1.03 and bought the same number of July 37 calls for about $1.38. Volume was below the previous open interest in the April options but below it in the July contracts.

This indicates that the trader is closing the earlier-dated calls and rolling the position forward in time to a higher strike. The adjustment cost a net $0.35 and provides another three months of upside exposure while raising the strike price by $1.

The new long calls, which lock in the price where traders can buy stock, are looking for ABX to be above $37 by mid-July. These options could be sold earlier for a profit if their premiums rise with any rally before then, but they will expire worthless if the shares don't reach that level. (See our Education section)

ABX slipped 0.12 percent on Friday to close at $34.04, just below its 50-day moving average. The Toronto-based gold and copper producer has been trapped between $33 and $36 since mid-November, far from its 52-week highs around $50 from last February.

Bargain hunters have been targeting beaten-down miners as precious metals have begun to recover from recent losses, and Barrick is no exception. In addition to Friday's action, ABX saw bullish call buying in the April 39 contracts on Jan. 10.

The company is scheduled to release fourth-quarter results on Feb. 14.
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Timing the Trade

Both break outs and a break downs need to have a couple things happen before it is considered a confirmed break out or break down by technical definition!  The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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