Unusual Options Activity In Gold Companies

| June 3, 2015 | 0 Comments

miningUnusual Options Activity In Gold Companies

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…  Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week…

Gold is a widely popular investment for both retail and institutional investors.  The precious metal serves as a store of value and currency replacement, among other things.  For a good article on different ways to buy gold, follow the link.

The price of gold is up just about a half percent so far this year.  At a price of about $1,190 per ounce, the precious metal is down 4.5% from this time last year.

So what does unusual options activity in gold companies tell us?

Several gold companies are seeing a major influx of call buying.  All this activity has basically come out of nowhere.  Apparently, investors are becoming convinced that gold is set for a bullish run.

Some investors like to trade the metal itself.  This can be accomplished using futures, ETFs, or even purchasing physical gold.  Other gold bulls prefer to use mining companies as a proxy.  Generally, it’s mostly a matter of preference.

Here’s the deal…

Over the last week, we’ve seen some big time action in gold miners.  Most of the trades have been straight up call buying.  Keep in mind, a call option makes money when the underlying stock goes up.

First off, there’s been massive action in Barrick Gold $ABX.  Over 25,000 October 12 calls were purchased for around $1.15 per contract.  This follows a 30,000 block of January 12 calls which were purchased last Friday for $1.45.

$ABX is trading right at $12, but has been as high as $19.20 over the past year.  Breakeven for the October calls is $13.15 and $13.45 for the January calls.  Between the two trades, almost $7.5 million has been spent on the calls.

What’s more, Market Vectors Gold Miners ETF $GDX is seeing plenty of call buying as well.  $GDX is the most heavily traded gold miners ETF and is trading at $19.82 currently.  Someone snapped up 15,000 of the September 20 calls for $1.27.

Finally, a couple large call trades have occurred recently in Newmont Mining $NEM.  $ABX and $NEM are two of the three largest public gold miners on US markets.  So, the big gold miners are obviously in demand.

Here’s the chart of gold (spot):

unusual option activity, a chart of gold

Spot gold has pretty much moved sideways over the last couple months, with a few minor attempts to break higher.  However, the 50-day moving average has definitely taken an upward turn.  The price of gold is approaching the 50-day line and it could be a battleground around $1,200 an ounce.

Whether it’s due to an expected interest rate increase, geopolitical risk, or something else, gold is clearly starting to attract investors.  This time around, the buying activity is occurring in big miners instead of the commodity itself.  That could be a sign that the smart money believes miners are undervalued.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note:  Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Unusual Options Trading Activity

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.