Gold mining company AngloGold Ashanti (AU) has fared well in the past year, with a 20 percent gain. One trader sees a pullback in the coming months.
That’s based on the April $20 puts. With 80 days until expiration, 5,002 contracts traded compared to a prior open interest of 115, for a 44-fold rise in volume on the trade. The buyer of the puts paid $0.90 to make the bearish bet.
Shares currently trade just under $22, so they’d need to drop nearly 10 percent for the option to move in-the-money. Given the volatility in the gold space, such a move is possible before expiration. AngloGold shares have a 52-week low of $12.
Revenues have risen by 9 percent at the miner over the past year. Shares largely trend higher or lower based on the price of gold. With the metal back over $1,900, investor interest has risen, but a decline in gold prices from here could easily weigh on shares.
Action to take: Shares are fairly priced right now, with the stock going for about 18 times earnings. Interested investors can wait for a pullback in the coming months to get a better price, even though shares yield almost 2 percent right now.
Traders may like the April puts, as they offer a leveraged return on a drop in the coming months. A pullback in gold prices could lead to the options delivering mid-double-digit returns or better.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.