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Bull hopes for reversal in New Gold

Mike Yamamoto (mike.yamamoto@optionmonster.com)

New Gold has pulled back since issuing weak quarterly numbers last week, but one trader is looking for a rebound by early next year.

optionMONSTER's Heat Seeker system detected the purchase of 2,500 January 9 calls in two blocks for $0.35 yesterday. This is clearly a new position, as open interest in the strike was just 453 contracts before the trade appeared.

These long calls lock in the price where the stock can be bought no matter how far it might rise through mid-January. The options could be sold earlier at a profit if premiums rise with a rally before then, but they will expire worthless if shares remain below the $9 strike price. (See our Education section)

NGD fell 1.2 percent to $6.59 yesterday, closing below its 50-day moving average for the second session in a row. The Canadian miner had been bumping against resistance at its 100-day moving average but then dropped last Wednesday after missing estimates on the top and bottom lines in its second-quarter results.

The company has been hammered along with other miners as the price of precious metals has plummeted in recent months. But New Gold's CEO projected a 30 percent increase in gold production in the second half of this year.

Total option volume in the name yesterday was 6 times its daily average. Overall calls outnumbered puts by 5 to 1.

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