To The Moon

Overview of Strategy

On November 1, 2024, I sold a put option on Barrick Gold Corporation $Barrick Gold Corp(GOLD)$  , a leading international gold and copper mining company. The put had a strike price of $18.50, an expiration date of November 8, 2024, and I collected an option premium of $21. At the time of the transaction, Barrick Gold's stock was trading at $19.28. The intent behind selling the put option was to generate income from the premium, capitalizing on Barrick Gold’s strong performance indicators and growth trajectory while managing potential downside risks.

Analysis of Barrick Gold’s Performance

Barrick Gold had been performing well throughout 2024, buoyed by a favorable gold market environment and strong operational metrics:

Q1 2024 Results: Net earnings per share rose by 143% year-over-year, with adjusted EPS reaching $0.19, exceeding analysts' expectations. The EBITDA margin improved to 41%, and operating cash flow was robust at $760 million.

Goldrush Mine Production: The new Goldrush mine, with Barrick holding a 61.5% stake, began production in 2024, contributing to Barrick’s growth outlook and positioning it for sustained future production gains.

Increasing Production: In Q2 2024, gold production increased slightly to 948,000 ounces, supported by operational improvements across key mines.

This positive momentum resulted in a 14% increase in Barrick's stock price following Q1 earnings, reflecting investor confidence in Barrick’s future growth, particularly with rising gold prices and reduced production costs.

The Option Outcome

Despite Barrick’s favorable fundamentals, the stock price declined to $18.41 on November 8, 2024, just below the put option strike price of $18.50. Consequently, the option was assigned, and I became the holder of Barrick Gold stock at the exercise price of $18.50 per share.

Reflection on the Strategy

Premium Income: The primary goal of this put-selling strategy was to earn $21 in premium income. This premium effectively reduced my break-even point on Barrick Gold to $18.29 ($18.50 strike price - $0.21 premium), softening the downside impact from the stock assignment. Selling the put at a price close to Barrick's recent trading range was an appealing strategy to collect income while potentially acquiring the stock at a discount if assigned.

Acceptable Acquisition Price: Entering this put option sale was based on my willingness to acquire Barrick Gold shares at the $18.50 price level. Given Barrick’s growth indicators, including new production capacity at Goldrush, improving EBITDA margins, and strong cash flows, acquiring the stock at this price remains a favorable entry point for a long-term investment in a solid mining company.

Market Volatility and Short-Term Price Movement: Although Barrick’s underlying fundamentals were strong, short-term price fluctuations in the gold market likely influenced the stock's drop below $18.50. Gold prices can be volatile and are sensitive to macroeconomic factors, inflation rates, and geopolitical events. This volatility presented a risk to the put-selling strategy, resulting in assignment but also providing an opportunity to hold a fundamentally sound company at an attractive price.

Long-Term Growth Potential: With Barrick's ongoing operational improvements and gold price trends expected to support further gains, holding Barrick Gold stock aligns well with a longer-term investment horizon. The expected ramp-up at Goldrush and steady production increases provide a positive growth outlook, which could lead to future appreciation in stock value.

Outlook and Insights

Going forward, Barrick Gold’s continued success in expanding production capacity and maintaining cost-efficiency will be key factors influencing the stock price. Barrick’s emphasis on the Goldrush project and rising production levels at Turquoise Ridge and other sites underscore its potential to benefit from higher gold prices.

Investors should consider the volatility of commodity prices, especially gold, as a risk factor. For future trades, a similar put-selling strategy may be prudent when Barrick's price approaches key support levels, allowing for premium collection with the option to acquire shares at an attractive valuation. Monitoring macroeconomic trends that impact gold prices will also be crucial to better timing entry points in Barrick Gold or similar assets.

Conclusion

This investment strategy reflects a balanced approach to capitalizing on Barrick Gold’s solid fundamentals by using put options to generate income while offering a potential entry into the stock at a fair price. Although the assignment of the put was not the ideal outcome, I am comfortable with the result, as Barrick remains a valuable long-term holding.

In retrospect, selling the put option on Barrick Gold provided both income and an opportunity to own shares in a leading mining company at a favorable price. This outcome reinforces the value of using options to enhance returns while remaining adaptable to market conditions and macroeconomic influences in the commodities sector.

$GOLD 20241108 18.5 PUT$