Barrick Gold Corp. (NYSE: ABX) shares are rising today, helped by higher gold futures. Gold futures are not back up to their record $1,000+ prices, but are recovering after a dip down below $900 in late March. The front-month contract is up almost 2% today, nearing $950 possibly due to investor worries about inflation as the dollar continues to struggle against foreign currencies. If you think that the stock 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 $27.71 in May, the stock hit a one-year high of $54.74 in March, ABX opened this morning at $44.77. So far today the stock has hit a low of $44.75 and a high of $46.20. As of 12:40, ABX is trading at $45.63, up $2.16 (4.9%). The chart for ABX looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a May 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 a 4.2% return in just one month as long as ABX is above $37.50 at May expiration. Barrick would have to fall by more than 18% before we would start to lose money. Learn more about this type of trade here.
ABX hasn't been below $37.50 since September and has shown support around $42 recently. This trade could be risky if the price of gold futures declines over the coming month, but even if that happens, this position could be protected by the support the stock might find from its 200-day moving average, which is currently around $41 and rising.
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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