Call volume has exploded on Kinross Gold (KGC) this week, indicating near-peak levels of bullish speculation…but it could also mean that short sellers are hedging their bets.
On Monday, Kinross Gold Corporation (KGC) announced that it closed its $1 billion unsecured debt offering. KGC plans to use the proceeds of the offering for general corporate purposes, including funding for capital expenditures. Separately, UBS lifted its price target on the stock to $25.50 from $23 and reiterated its "buy" rating.
Against this backdrop, and with help from gold’s record-breaking rally, call volume soared to ten times the daily norm on KGC on Monday, with roughly 75,000 of these bullishly oriented options crossing the tape. By comparison, just 5,860 puts changed hands during the course of the session.
Monday’s call-heavy options volume is nothing new for KGC, as evidenced by the stock’s ten-day International Securities Exchange (ISE) call/put volume ratio of 98.5. Not only does this ratio reveal that nearly 99 calls have been bought to open for every put purchased during the past two weeks, but it also ranks above 92% of all other readings taken during the past year, pointing to near-peak levels of bullish speculation on the shares.
Traders favored KGC’s October 20 call, with 3,059 contracts exchanged—most of which crossed the tape at the ask price, hinting at buyer-driven activity. Overnight, call open interest jumped by more than 3,000 contracts at the October 20 strike, confirming the addition of fresh long positions.
By purchasing to open KGC’s October 20 call, these option players could be counting on the gold stock to rally above the $20 level over the next several weeks.
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However, there is also another possible motivation behind Monday’s activity at the 20 strike. Short interest increased during the most recent reporting period, and currently accounts for over 8% of KGC’s total available float. Oftentimes, the shorts will scoop up out-of-the-money calls as hedges for their bearish bets.
Given that KGC is hovering just around $17.50 and hasn’t touched the $20 level since January 2010, this could be a likely possibility.
By Sarah Wasserman of Schaeffer’s Investment Research
