With the May series of options expiring after today's close, traders stocked up on June-dated calls on Barrick Gold Corporation (USA)
(NYSE:ABX) during Thursday's session. The day's most active strike was the ABX June 25 call, where 3,604 contracts crossed the tape. Nearly all of these contracts traded closer to the ask price, suggesting they were purchased, and open interest rose overnight by 1,183 contracts -- confirming the addition of new long calls on the gold stock.
Also in play was Barrick Gold's June 19 call, which traded volume of 2,389 contracts. More than three-quarters of these calls changed hands at the ask price, and 2,000 of those contracts translated into new open interest.
Those June 25 calls traded at a volume-weighted average price (VWAP) of $0.10, which means traders will begin to profit if ABX rises above breakeven at $25.10 (strike price plus VWAP) prior to back-month expiration. Meanwhile, the VWAP on the June 19 calls was $1.17, placing breakeven at $20.17.
For the record, ABX settled Thursday at $19.26, bringing its year-to-date loss to roughly 45%. Unsurprisingly, the lagging stock has become a favorite among short sellers
, with short interest surging by 48.6% during the most recent reporting period.
In light of this fact, it's possible that some of the out-of-the-money call volume on Barrick Gold Corporation could be related to increased hedging activity by the shorts. While those June 19 calls aren't too far away from being profitable, ABX would need to rally more than 30% over the next month for Thursday's June 25 call buyers to turn a profit.
This article by Elizabeth Harrow was originally published on Schaeffer's Investment Research.
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No positions in stocks mentioned.