Shares of gold mining giant AngloGold Ashanti (AU) have lost nearly half their value since July 2020. One trader sees that trend continuing this year.
That’s based on the November $13 puts. With 302 days until expiration, 6,389 contracts traded compared to a prior interest of 156, for a 41-fold rise in volume. The buyer of the puts paid $0.68 to make the trade.
With shares currently around $18.50, shares would need to drop another 30 percent between now and November for the puts to move in-the-money given a strike price of $13.
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Shares peaked around $36 back in mid-2020, when gold prices were running hot amid the steepest rate of money printing and economic stimulus during the pandemic. Since then, gold prices have moderated and have been unable to move higher, even as inflation rates have hit multi-decade highs.
Action to take: Shares have been generally trending down, although gold stocks have been a relative outperformer in recent months. Further downside looks likely if inflation rates start to come down, as buying pressure will likely decline for gold as well.
Since shorting shares outright can be dangerous, buying a put option looks like a good way to go. The low price of this trade, and its strike date more than six months out, gives traders plenty of time for the trade to play out. This looks like a good hedge against falling gold prices and a way to bet on declining inflation rates, and traders should look for mid-to-high double-digit profits on this trade.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.