Barrick Gold (ABX) roll bets on extended further upside

By Jud Pyle, CFA,

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Without a clear catalyst, Barrick Gold Corp. (NYSE: ABX ) saw heavy upside call action during the trading session on Monday while shares of the gold company hovered around unchanged on the day. The July 36 calls and October 37 calls were particularly active as part of a bullish roll. So the actual catalyst is the fact that July options will expire at the end of this week.

ABX shares closed Monday's session down six cents to $43.51. ABX is due to announce earnings figures on July 29 before the market opens and analysts estimate earnings of 70 cents a share. Heavy call volume in the front month and October expiration month suggests an investor might not be done with bullish exposure in ABX and decided to roll out a long call position.

At 11:14 a.m. EST, a block of 6,000 July 36 calls changed hands for $7.73 per contract, which was just three cents higher than the bid price at the time of the trade, and a same-sized block of October 37 calls changed hands simultaneously for $7.80 per contract, or right at the ask price when the volume hit the tape. The July 36 calls are home to current open interest of 6,700 contracts and the October 37 calls are home to current open interest of just 337 contracts. It's clear from this options action that the investor sold to close the July 36 calls and bought to open the October 37 calls paying a net debit of seven cents per spread. The opening long call trade could theoretically make unlimited profits to the upside if ABX shares were to continue to rally.

The October 37 calls are trading with an implied volatility of 40% compared to the stock's 30-day historical volatility of 36%. It looks like at least one investor expects the shares to keep moving higher and wanted these October 37 calls to participate in a rally.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Options
Referenced Stocks: ORCL

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