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Friday, July 19, 2024

Raging Gold Demand Delivers Gains for Barrick Gold Options Trader

Today’s tickers: ABX, V, HOG & MCO

ABX – Notable options activity on the world’s largest producer of gold caught our eye today as the stock continues higher for the second day running. Shares of ABX rallied 2.5% to $38.93 as dollar weakness and rising demand for precious metals helped boost the price of gold to its highest level in three months. Option trades in the front months suggest investors believe the rally may taper off. One trader who initiated a call spread on Tuesday chose to unravel the position this morning to take in profits. He originally purchased the 6,000 lot spread at the October 37.5/41 strikes for a net cost of 70 cents per contract. Today he closed out the position by selling 6,000 calls at the October 37.5 strike for 2.95 each and buying back 6,000 calls at the higher October 41 strike for 1.45 apiece. The 1.50 credit received by closing out the call spread is reduced by the 70 cent purchase price of the original transaction, leaving the trader with net profits of 80 cents per contract. Thus, the investor has reeled in total profits of $480,000. Indications of lower volatility for ABX was apparent by the sold strangle play enacted in the September contract. Traders shed approximately 3,500 calls at the September 39 strike for a dollar apiece in conjunction with the sale of about 3,500 puts at the lower September 37 strike for 80 cents each. The gross premium pocketed on the sale amounts to 1.80 per contract and is full retained as long as shares remain ‘strangled’ within the confines of the strike prices previously described. – Barrick Gold Corp. –

V – Bullish risk reversals accumulated in the January 2011 contract on the credit card company this morning as far-term optimists shed put options to finance the purchase of calls. Shares of the firm were trading down earlier in the session, but have since recovered, gaining less than 0.5% to $70.20. Investors employing the reversal strategy looked to the January 70 strike price to sell 12,000 puts for a premium of 11.30 each. The sale of the puts more than offset the cost of picking up 12,000 calls at the higher January 85 strike for 6.00 per contract. Traders retain the 5.30 credit pocketed on the transaction if shares remain higher than $70.00 by expiration in January 2011. Additional profits could accumulate if shares of Visa jumped more than 21% from the current price to surpass the breakeven point at $85.00. Finally, the net credit received today provides a buffer against potential losses to the downside. If the stock were to fall below $70.00 by expiration, investors short the put options would likely have shares of the underlying put to them at an effective price of $64.70, or the strike price less the net credit of 5.30. Beneath a share price of $64.70, traders are exposed to increasing losses to the downside beyond expiration. – Visa, Inc. –

HOG – Bearish premonition on the motorcycle company proved profitable for one investor today who was observed closing out a put position on the stock. Shares of HOG have declined more than 1% during the session to stand at the current price of $22.41. It appears the trader originally purchased 5,000 puts at the October 20 strike for an average premium of 52 cents apiece on September 1, 2009. Today he shed all 5,000 lots for a richer 75 cent premium. The trader has banked net gains of 23 cents per contract for a total of $115,000. – Harley-Davidson, Inc. –

MCO – After Wednesday’s close a U.S. judge posted his ruling in which he refused to dismiss a lawsuit against Moody’s Investor Services Inc. and Standard & Poor’s. Judge Shira Scheindlin rejected arguments put forth by the firms that private-placement notes are opinions protected by free-speech rights, which might mean investors can’t sue for what they believe to be deceptive ratings. Shares in Moody’s slumped towards the lowest price since August 3 losing 9.5%, while shares in McGraw Hill, parent of S&P, also fell heavily. Bearish options on Moody’s expiring later this month indicate that investors expect worse to come and positioned in strike prices as low as 19 and 20. A decline to the latter would mean shares may fall a further 15% from $23.65 according to demand for bearish plays. Shares yesterday closed at $26.00 apiece. Increased uncertainty surrounding the prospects for its shares from here drove option implied volatility higher by around 25% to 56.8% today. Both the 22 and 24 strikes saw volume of about 3,400 contracts ahead of noon. – Moody’s Corp. –


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