Trader Fears Reversal In Key Gold Miner: Options Recap

Trader Fears Reversal In Key Gold Miner: Options Recap

Have gold miners gone from safe havens to risky stocks? One options trader seems to think so.

Put volume is surging to a 4-1/2 year high in Newmont Mining (NEM), the world’s biggest gold producer. Traders started buying the 23-August 37 puts shortly before lunch, initially paying $0.48.

Premiums rose as the orders flowed in: $0.49 … $0.52 … $0.54 … $0.57 — finally all the way to $0.60. NEM barely moved in the process, a sign of strong demand lifting the value of the options.

More than 47,000 contracts had changed hands when it was all said and done. That was more than 1,500 times previous open interest at the strike, a sign of new money being put to work.

Puts fix the price where investors can sell a stock, so they can profit when shares decline. Puts can hedge on a long position, or let traders position for a drop. Either way, it’s usually a bearish sign when they’re purchased. (See our Knowledge Center.)

Newmont Mining (NEM) with put volume indicator and 50-day moving average.
Newmont Mining (NEM) with put volume indicator and 50-day moving average.

Tariffs Halted

NEM fell 2.6 percent to $37.45 in afternoon trading, but started the session up 30 percent since early May. Most of that gain came as investors looked for the Federal Reserve to cut interest rates. There have also been worries about geopolitical risk and the global economy as President Trump pushes his trade war against China.

However, fears evaporated this morning after the White House delayed some tariffs and canceled others. That caused investors to shift money from safe havens like gold and toward stocks like Apple (AAPL) and semiconductors.

It’s also noteworthy that the put buyer in NEM is targeting a drop by the end of next week. That’s potentially bullish for the broader stock market in the near-term.

In conclusion, NEM has rallied as a safe-haven play. But now traders may be doubting that pessimistic view.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on 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 apprised 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.