I have been Put Selling against Barrick Stock on and off for several years. Whenever Barrick stock rises to what I believe is overvalued prices, I stop Put Selling and when it falls back I start Put Selling again. It is the high volatility of Barrick Stock that I like for Put Selling and the stock does pay a dividend of .80 which at the present level is about 4.5%. Barrick stock has cut its dividend in the past and I am sure it will do so again in the future as the mining industry is filled with problems and volatility. For one thing, mining precious metals is expensive and difficult. There are many factors that can alter mining profitability, but then again that’s why I do put selling against Barrick Stock. The volatility provides for substantial returns.
Yesterday I was busy selling puts against Barrick Stock. Today with a 7.5% jump in the stock, I was busy closing my far out of the money naked calls for May 18 options expiry for pennies. If Barrick stock continues to climb for a day or two longer I will be back selling naked calls. For FullyInformed Members, they can review all my Barrick Stock trades through this link.
Put Selling and Trading in Barrick Stock
Over the past few days I have received emails from investors wondering why I picked ABX Stock and how to trade it. Trading in Barrick Stock comes down to your personal judgement and your outlook. I do not trade commodities as I find that no strategy I can come up with, is consistent with profits. Every time I think I have a strategy that is bringing in profits, suddenly the commodity outlook changes and the strategy ends with losses.
However trading against Barrick Stock is very different. I can establish key valuations where ABX Stock is worth Put Selling against and where it is not.
Barrick Stock 5 Year Weekly Chart
The stock below is from my trader’s journal on Barrick Stock. Here is how I trade within Barrick Stock. When the stock is at $35 and below I consider it for Put Selling. Between $35 and $42 I stop Put Selling. Above $42 I consider the stock overvalued and over $50.00 I usually turn to the Shark Option Trading Strategy to time when to buy put options. The Shark Option Trading Strategy is designed for highly volatile ETFS and stocks like AGQ ETF and Apple Stock. It also works very well on Barrick Stock due to the high volatility of the stock. The Shark Option Trading Strategy is available in my shop as part of a 4 part strategy series. For interested investors you can review the PDF file here. Basically this strategy tells me when to buy puts or calls and when to sell them. For ABX Stock I use it only to buy puts. I am not interested in buying calls as I prefer to be Put Selling when ABX stock is in a rising trend.
Below $35 is great for Put Selling. Below $26 I increase the quantity of puts being sold and below $20 are what I consider fire sale prices and normally, such as at present, I sell larger quantities of put contracts at this level. This strategy worked very well in the period from 2000 to 2007.
Barrick Gold Stock Put Selling for 5 years weekly
You can see the reasons for this strategy and why it works so well.
1) I am never caught selling puts at prices above $35 so whenever the stock turns back down I am not left holding puts at overvalued prices.
2) I sell only small quantities of puts between $26 to $35, so if by chance the stock falls I can easily roll down and if desired, I can keep increasing the number of puts being sold to keep roll downs profitable because I am rolling down into prices below $20.
3) Between $26 to $20 I increase the number of put contracts.
4) Below $20 prices are on sale and the lower they go the better they are and the more puts I am selling. It’s obvious that this strategy should work because when ABX Stock falls below $20 it has pushed back up each time since 2000. Therefore it makes sense to be selling the most puts below $20.00 when the stock pulls back such as is happening at present.
Barrick Stock Strategy At Present
Below is the period from February 24 to April 24. This two month period shows the intense pressure Barrick Stock has been under. That pressure is both from the collapse of the price of gold and the problems Barrick Gold Corp has faced with its South American mining operation as well as its poor revenue and profit performance over the past couple of years.
Barrick Stock Daily Chart since Feb 24 2013
Here are the key aspects of the above chart and why I have not purchased shares but prefer Put Selling at out of the money strikes.
You can see in the stock chart that as Barrick Stock collapsed it clung to the Lower Bollinger Band and pushed the band lower. At point A which was yesterday, the stock had moved away from the Lower Bollinger Band but was still under pressure and trending sideways. For me to consider buying shares I need to see the stock pull away from the Lower Bollinger Band and then climb back up for at least a day or two. Moving sideways is common for commodity stocks when they have been under intense selling pressure like Barrick Stock. Often the sideways move is followed by a drop lower. This is part of the reason I prefer to stay with put selling out of the money as the stock trends sideways.
POINT B. If you look at the accumulation / distribution technical indicator for the past two months you can see that as the stock fell rapidly, selling intensified as investors fled the stock. As it fell below $20 the accumulation plunged. Instead you would have thought accumulation would have moved up as the stock became under valued. Finally today POINT C you can see there is a slight up turn in the indicator which shows that today some investors were actually buying or accumulating the stock. For my strategy the low prices at POINT C is where I prefer to be selling larger quantities of puts and indeed this is what I have done which you can see in the Barrick Stock Trades for 2013 which can be viewed in the members section.
I have marked POINT D in the volume technical indicator to show that as the stock fell this past week, sell volume was huge reaching 4X normal daily volumes. Investors were obviously getting out. Finally today which I have marked as POINT E, investors were buying some shares although the volume is still half of the sell volume (from POINT D.) Obviously a lot of today’s action were day and swing trades.
Put Selling Strategy
With Barrick Stock below $20 I am using two put selling strategies. The first is Put Selling far out of the money puts which is what I have done for June and which I did do for May although as the stock collapsed it came closer to my May strikes. Down days are the best for selling puts in Barrick Stock in my opinion and per yesterday, I like to put sell when others are dumping shares.
I think watching volume is important when Put Selling a collapsing stock. As you can see in the above chart over the last several days volume is declining which tells me that sellers are tiring, which is a good sign that Barrick stock may be ready to stall or bounce back up.
The second strategy I am using at these low levels in Barrick Stock is Put Selling against the weeklies. Yesterday for example the stock got down to $17.60 near the close of the day and as I believe $17.50 is an attractive price for owning ABX Stock, I sold the weekly $17.50 put for .50 cents. This is a huge return of 2.8% for 4 days risk and I do not consider $17.50 to be much risk for Barrick Stock.
I only sell the weeklies at strikes I think Barrick Stock is undervalued at. Once Barrick stock recovers above $26 I rarely sell the weekly puts.
Naked Calls Strategy
Finally I like naked calls with Barrick Stock as FullyInformed Members can see in my 2013 trades. When a stock is collapsing, selling naked calls makes a lot of sense. For one thing, I want the stock to recover so selling naked calls fits into my strategy. If the stock fails to recover then the income just adds to the profit. If the stock recovers and places my naked calls in the money I buy stock and sell out as covered calls.
Why Not Own Barrick Stock
I am not interested in owning Barrick stock, ever. I have found that the stock is difficult to judge for movements over any lengthy period of time. Instead by Put Selling I am in control at what price point I would accept shares. I can then take control of any stock assigned at my price point and sell covered calls or use other strategies to be exercised from the stock. This allows me to only ever own shares for a short period of time and reduces the need to follow a trade for an extended period of time. That said, since starting put selling in 2008 against Barrick Stock I have not yet been assigned shares. Instead I have stayed with a rolling strategy on Barrick Stock whereas any time the stock falls to my naked put strike I immediately buy to close and sell to open at lower strikes.
This does not mean Barrick stock would not make a great trade. I am sure it does for some investors, but I have found that I prefer Put Selling and find it the most consistent for earning income without loss to my capital.
I find it is the consistency of staying with a strategy and learning it inside and out and then applying that strategy to specific stocks that makes for consistent profits. I have never had a lot of success trading Barrick Stock but I have earned exceptional double-digit returns annually through Put Selling and naked calls which obviously then is my preferred method of trading within Barrick Stock.
Barrick Gold Stock (ABX) Internal Links
Review Barrick Gold Stock Trades For 2013
Review all Members articles on Barrick Gold Stock
Review all articles on Barrick Gold Stock