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Huge buying in gold miners at close

Chris McKhann (chris.mckhann@optionmonster.com)

A trader jumped into an enormous number of out-of-the-money calls in gold miners right before the session closed yesterday.

optionMONSTER's Heat Seeker system shows that the three largest option prints of the day came in the final 3 minutes of trade in three names. A trader bought 250,000 January 90 calls in Barrick Gold for their ask price of $0.07. A minute later, he or she bought 156,312 January 80 calls in Goldcorp for the ask price of $0.10. And a minute after that, the same trader purchased 200,000 January 90 calls in Newmont Mining for their ask price $0.10.

The open interest at each of strike was under 5,000 contracts, so these are clearly new purchases. The delta of these options was 0.01 in all three, meaning that they have a 1 percent probability or less of finishing in the money at expiration in about 11 months. So these are relatively cheap bets on these stocks, but the total cost of the long calls is more than $5.3 million--no small change, especially given the very small probability of profit. (See our Education section)

Shares of all three names fell sharply yesterday, with ABX and GG down just under 4 percent and NEM down 5.45 percent. ABX and NEM hit new 52-week lows, while GG was just above July levels. The all-time highs for these stocks came in the fourth quarter of 2011, with ABX and GG around $56 while NEM was just over $72.

It would be a vast understatement to call this an unusual option trade. I have never seen anything like it. 

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