Investment Reflection on GOLD Vertical Put Option Strategy
Overview of the Investment Strategy
On May 31, 2024, I initiated a vertical put option strategy on Barrick Gold Corporation (GOLD) $Barrick Gold Corp(GOLD)$ with a maturity date of July 19, 2024. Specifically, I sold put options at a strike price of USD 17 and bought put options at a strike price of USD 16, collecting an option premium of USD 33 per contract. This strategy aims to capitalize on the stable or bullish outlook for Barrick Gold’s stock price over the specified period.
Rationale Behind the Strategy:
Barrick Gold’s Strong Fundamentals
Barrick Gold Corporation is a prominent player in the global gold mining industry, known for its vast reserves, efficient operations, and sustainable mining practices. In addition to gold, Barrick also produces substantial amounts of copper, which has been experiencing a surge in demand and price, providing an additional bullish catalyst.
From a fundamental perspective, Barrick Gold is highly appealing due to its projected earnings per share (EPS) growth and attractive valuation. The stock trades at a one-year forward earnings multiple of 16.7x, which is below the industry average and its 10-year median of 20.9x. Furthermore, with earnings expected to grow at 38% annually over the next 3-5 years, Barrick boasts a PEG ratio of just 0.44. The company also offers a dividend yield of 2.3%, adding to its investment appeal.
Strategy Performance and Analysis
The vertical put option strategy involves selling a higher strike price put (USD 17) and buying a lower strike price put (USD 16). By doing so, I collected a net premium of USD 33 per contract. This strategy profits if Barrick Gold's stock price remains above USD 17 by the maturity date, as the sold put would expire worthless, and the premium collected represents the profit.
Potential Outcomes
1. Stock Price Above USD 17:
- If Barrick Gold’s stock price is above USD 17 at maturity, both the sold and bought puts will expire worthless.
- The total profit will be the premium collected (USD 33 per contract).
2. Stock Price Between USD 16 and USD 17:
- If Barrick Gold’s stock price falls between USD 16 and USD 17, the sold put will be exercised, and the bought put will expire worthless.
- The maximum loss is limited to the difference in strike prices (USD 1) minus the premium collected (USD 33), resulting in a potential loss of USD 67 per contract.
3. Stock Price Below USD 16:
- If Barrick Gold’s stock price falls below USD 16, both the sold and bought puts will be exercised.
- The maximum loss is the difference in strike prices (USD 1) minus the premium collected (USD 33), resulting in a potential loss of USD 67 per contract.
Outlook and Insights
Given Barrick Gold's robust fundamentals, efficient operations, and favorable market conditions for both gold and copper, the outlook for the company remains positive. The company's undervaluation compared to its historical and industry averages, coupled with strong earnings growth projections, supports a bullish view. Additionally, the dividend yield of 2.3% further enhances shareholder value.
Conclusion
The vertical put option strategy on Barrick Gold (GOLD) represents a calculated bet on the company’s strong fundamentals and positive market outlook. By collecting a premium of USD 33 per contract, I positioned myself to profit if Barrick Gold’s stock price remains stable or increases. While there is a risk of loss if the stock price drops significantly, the potential loss is limited and outweighed by the strong fundamentals supporting Barrick Gold. Overall, this strategy aligns with my bullish sentiment on Barrick Gold, offering a balanced risk-reward profile.
$GOLD CUSTOM 240719 PUT 17.0/PUT 16.0$
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