Call Options Or Put Options On Barrick Gold (ABX)?

| November 12, 2014 | 0 Comments

miningOne of North America’s biggest gold miners, Barrick Gold (ABX), is at an important inflection point. Will positive corporate news counteract the drop in the price of gold?

ABX shares are currently trading at $11.74. The stock is trading 45% below the 52-week high of $21.28 and is 8% above the 52-week low of $10.90.

Is this an opportunity to buy call options on ABX because of the possibility of a large new mine? Or should you buy put options on ABX because gold is in trouble? 

The bulls make a convincing argument…

ABX is up today on news it may complete its currently stalled Pascua Lama gold mine project in Chile. This mine could contribute a large share of ABX’s future gold production.

Not to mention, the mine could produce a whopping 850,000 ounces of gold annually. That’s a lot of precious metal and would certainly be a boon for the company.

Moreover, with all the macro global risk we’re seeing lately, gold could quickly gain favor among investors. Many still believe it’s a good safe-haven trade.

But the bears have a compelling case as well… 

While additional production is a good thing, it won’t matter much if the price of gold dips below $1,000 per ounce or less. Gold has fallen out of favor and only looks like it’s going farther down.

The fact is, gold doesn’t need to be a safe-haven investment with the US Dollar remaining strong. The dollar is basically a much safer investment than gold at this point.

As long as the US economy remains resilient, the dollar will always win out over gold. And, ABX is going to struggle if the price of gold keeps falling.

So is it time to be bullish on ABX due to new production opportunities or do you take a bearish position because the price of gold is a concern?

If you think the bulls are right, take a look at buying the ABX December 20th 12 calls for around $0.40. 

If you think the bears are right, take a look at buying the ABX December 20th 11 puts for around $0.40.  

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.