Bulls Go for Gold in Blue Chip Miner: Options Action


Most stocks have taken a beating in the last week. But gold miners have been strong, and today options traders are piling into the top name in the space.

Huge call volume was detected in Newmont Mining (NEM) almost as soon as the market opened. Buyers started by snapping up April 37 calls for about $2.74 to $3.15 minutes after the bell. Volume quickly reached 14,000 and continues to build. That’s more than 20 times previous open interest at the strike, which means new positions were initiated.

Other large blocks followed in the January 45 calls. This time about 4,200 contracts were purchased for $5.30 and $5.35.

In case you haven’t visited TradeStation’s Knowledge Center recently, here’s what the activity could mean. Calls fix the price where a stock can be bought. That allows them to profit from a rally with limited capital at risk. Their relatively low cost can also translate into significant leverage relative to the underlying shares.

For example, if NEM climbs less than 8 percent to $43, the April 37 calls will double in value. But there’s risk along with that potential reward because the contracts will expire worthless should the stock decline just 7 percent below $37.

NEM is currently up 2.21 percent to $39.61 in late morning trading. It’s the largest gold miner in U.S. markets based on market cap, and the biggest member of the heavily traded Vectors Gold Miners ETF (GDX). The company’s beaten estimates in most of its recent quarterly reports and is now poised to grow production at new mines.

Bulls may see two other positives for the name. Technically, it’s managed to hold support above its 200-day moving average and is now trying to push back above it’s 50-day moving average. Both of those may be viewed as evidence of an uptrend.

Secondly, the U.S. dollar is probing its lowest levels in over a month. That’s often good for precious metals like gold, which move inversely to the greenback.

Overall option volume in NEM is more than triple the daily average, according to RadarScreen. Calls outnumber puts by a bullish 9-to-1 ratio.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.