Barrick Gold Corporation (USA) (NYSE:ABX) with its market capitalization of $13.22B operates mines and advanced exploration and development projects. Barrick Gold is considered the biggest gold miner in the world even after a 13% year-over-year decline saw the company mining 6.2M ounces of gold in fiscal 2014.
The Company operates mines or projects in Canada, the United States, the Dominican Republic, Australia, Papua New Guinea, Peru, Chile, Argentina, Zambia, Saudi Arabia and Tanzania. The Company’s gold operating units are: Cortez, Goldstrike, Pueblo Viejo, Lagunas Norte, Veladero, North America and Australia Pacific.
The shares of Barrick Gold have been in a freefall in the last five years as the stock declined by more than 80% since 2013. In fact, the stock has dropped from a trading price around $58 per share to a current trading price around $11.
Why Are We Looking at Barrick Gold Today
The freefall in the shares of Barrick Gold has continued this year but the recent performance of the stock has divided the market opinion about where the stock is headed. I strongly believe that this division in the market provides options traders with a unique chance for strategic positioning to profit from ABX call or put options.
The chart above (with my annotations) shows how the shares of Barrick Gold have traded within the last one year. As I have mentioned earlier, the stock has been in a freefall since July 2015 as the blue arrow shows. In fact, the steepest decline of the stock took place from mid-August to December 2014.
Interestingly, the shares of Barrick Gold have been trading in a channel over the last four months to form a rectangle pattern. Barrick Gold’s rectangle pattern was formed with the stock showing a $13 resistance point (red line) and a $10 support level (green line).
Shares of Barrick Gold closed with 0.62% declines yesterday to have the stock closing at $11.29. That $11.29 closing price marks a 6.02% discount to the stock’s 50-day moving average or $11.97 and its marks a 25.86% discount to its 200-day moving average of $25.86.
How to Trade ABX Options
Shares of Barrick Gold will eventually pullback below the $10 support level or breakout above the $13 resistance point. Hence, we can trade long ABX (calls) options on the expectations of pullback towards $10 or a breakout above $13. A short trade can be entered with the expectation of a breakdown under $10.
However, the fundamentals of Barrick Gold’s business are leaning more towards the bearish side of the trade than the bullish side of the trade. For one, the price of gold is has not showed strong strengthening patterns and it is unlikely that the course will change for gold in the short to medium terms as the World Bank forecasts that gold prices will decline by 5% through 2018.. Barrick Gold generates about 79% of its revenue from Gold; hence, the company will suffer from declining gold prices. Secondly, the company has a gloomy debt situation, as its long-term debts are more than its market capitalization.
Shares of Barrick Gold might ride the bullish momentum to a $12 trading price but the sell side of the market will have the last laugh: hence, I am buying put options of ABX Jul 2015 12.000 put (ABX150717P00012000) at an asking price pf $1.31.
— Daily Option Alerts