Commodity concern Goldcorp Inc. (USA)
(NYSE:GG) took a breather from its quest for new lows on Thursday, notching modest gains in tandem with gold
. Nevertheless, the options crowd wasn't convinced, with speculators scooping up puts at a faster-than-usual clip. By the close, GG saw around 12,000 puts change hands, more than doubling the norm.
Most popular was the January 2014 25-strike put, which saw nearly 3,900 contracts exchanged. Nearly all of that transpired in one fell swoop, as a block of 3,800 contracts traded at the ask price of $2.31, suggesting they were bought. Plus, open interest rose by 3,862 contracts overnight, confirming our theory of new positions being added.
By purchasing the LEAPS puts, the buyers expect Goldcorp to resume its journey into the red, and ultimately breach $25 within the next several months. More specifically, the position will become more profitable with each step south of $22.69 (strike price minus net debit) -- in territory not explored since early 2009. Risk, meanwhile, is limited to the initial premium paid for the puts, should GG remain atop the strike through options expiration in January 2014.
From a sentiment standpoint, yesterday's affinity for bearish bets runs counter to the recent trend. In fact, speculators have bought to open almost four GG calls for every put during the past two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting 10-day call/put volume ratio of 3.81 stands higher than 69% of all other readings of the past year, suggesting option buyers have initiated bullish bets at an accelerated clip.
Plus, despite underperforming the broader S&P 500 Index
(INDEXSP:.INX) by 28 percentage points during the past 60 sessions, GG still boasts nine "strong buys" and four "buy" ratings, compared to four lukewarm "holds" and not a single "sell" or worse suggestion. Likewise, the consensus 12-month price target of $45.49 represents expected upside of 63% to GG's closing price of $27.84 on Thursday.
Should the security continue its downward trajectory, this optimistic backdrop leaves Goldcorp vulnerable to a mass exodus of bulls. A reversal in sentiment in the options arena, or a flood of downgrades and/or price-target cuts, could exacerbate selling pressure on the shares. In fact, just this morning analysts at RBC reduced their price target on GG to $36 from $49, and also weighed in on fellow mining concern Yamana Gold Inc. (USA)
This article by Andrea Kramer was originally published on Schaeffer's Investment Research.
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