Unusually Large Newmont Option Trades Suggest Gold Prices Could Be Headed Even Higher

Newmont Corporation NEM shares are up 83.2% in the past year, but at least one larger option trader is betting on more upside from the gold mining giant as gold prices hit new highs.

The Newmont Trades: On Tuesday morning, Benzinga Pro subscribers received three option alerts related to unusually large Newmont trades.

• At 10:18 a.m., a trader bought 710 Newmont call options with a $50 strike price expiring in March 2021 near the ask price at $20.801. The trade represented a more than $1.4 million bullish bet.
• At 10:27 a.m., a trader sold 300 Newmont call options with a $65 strike price expiring on Friday at the bid price of $4.451. The trade represented a $133,530 bearish bet.
• At 11:07 a.m., a trader bought 1,000 Newmont call options with a $70 strike price expiring on Aug. 21 at the ask price of $2.285. The trade represented a $228,500 bullish bet.

Why It’s Important: Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of a couple of Tuesday’s Newmont option trades, they could certainly be institutional hedging.

More Gold Upside Ahead? Gold prices hit new record highs on Monday due to investor concerns about the ongoing COVID-19 pandemic, geopolitical tensions between the U.S. and China and the potential for long-term inflation associated with massive stimulus spending programs.

Gold was trading at around $1,950/oz on Tuesday morning, and Barry Dawes, executive chairman at Martin Place Securities, told CNBC he's expecting gold prices will reach $3,500 within the next two years.

Rising gold prices are excellent news for gold mining stocks like Newmont. During the previous financial crisis in 2008 and 2009, the price of gold didn’t peak until about two years after the market bottomed.

Benzinga’s Take: In theory, the higher gold prices go, the wider Newmont’s margins will be. The $1.4 million March 2021 calls purchased on Tuesday have a break-even price of $70.80, only about 3.1% upside from Tuesday’s levels.

Related Links:

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