Barrick Gold Corp. (NYSE: ABX) shares are rising today as gold futures prices are soaring. Gold could be rising as investors continue to show concern about economic conditions around the world. Gold futures reclaimed most of yesterday's losses in early trading. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ABX.
After hitting a one-year low of $26.94 in March, the stock hit a one-year high of $54.00 last month. ABX opened this morning at $49.23. So far today the stock has hit a low of $48.89 and a high of $49.55. As of 11:15, ABX is trading at $48.93, up $1.20 (2.5%). The chart for ABX looks bullish and steady, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $37.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just two and a half months as long as ABX is above $37.50 at April expiration. Barrick would have to fall by more than 23% before we would start to lose money. Learn more about this type of trade here.
ABX hasn't been below $37.50 by more than a few cents since September and has shown support around $49 recently. This trade could be risky if the price of gold drops off sharply, that probably won't happen with inflation worries continuing as interest rates keep getting lowered.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in ABX.
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Reader Comments (Page 1 of 1)
2-06-2008 @ 1:43PM
gu said...
bull!