Gold prices have been trending higher this year, and so have gold miners. One trader is betting that major gold miner Barrick Gold (GOLD) will see massive gains in the months ahead.
That’s based on the November $25 calls. With 199 days until expiration, 3,082 contracts traded compared to a prior open interest of 175, for an 18-fold rise in volume on the trade. The buyer of the calls paid $0.25 to make the bullish bet.
Barrick shares recently traded for about $17, so they would need to rise $8.00, or 47%, for the option to move in-the-money. The strike price is well over the stock’s 52-week high of $20.75.
The gold miner still hasn’t seen the full impact of the recent rally in gold. Revenues are up 10% in the past 12 months, and the company is just flipping to profitability.
Typically, gold mining companies see profit margins improve as gold prices move up. With a current margin of 11%, Barrick is slightly above average for a commodity company.
Action to take: Investors who expect gold to continue higher may want to own shares of gold mining companies, as they can see higher percentage returns during a rally.
At current prices, Barrick also pays a 2.3% dividend.
For traders, the November calls are inexpensive and could see triple-digit returns on a strong rally for gold and gold mining stocks. However, traders should keep an eye out and look to take profits if it looks like shares won’t move in-the-money.
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 company mentioned in this article.