December call buying indicates further rally in shares.
Gold mining companies have been doing well this month, as gold prices have risen along with market fears. Traders continue to bet on the space moving higher, with a big trade on Wednesday in shares of Barrick Gold (GOLD).
Over 3,100 contracts on the December 2019 $23 calls on shares traded, a 16-fold increase in the prior open interest just under 200 contracts. With a current share price just over $18, the option is a bet on a 25 percent rise by the holidays. With a current share price just over $18, the option is a bet on a 25 percent rise by the holidays.
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Barrick Gold is one of the “major” producers of metals, with global operations and some of the lowest-cost mining operations. It may not be as speculative as some of the smaller plays, but the company’s profitability will improve if gold prices continue to rise.
Action to take: Although shares of Barrick gold are now up 74 percent in the past year, there’s more room to run as markets look for a safe-haven trade. Barrick looks a bit expensive at 31 times earnings, but gold mining companies tend to have poor earnings when gold is out of. Investors looking for a safe-haven should look at shares.
Traders should look at the December $23 calls, which are an inexpensive bet on a further rally in gold at $0.50 right now, or about $50 per contract.