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Option Activity Alert: Bears Bet Against AngloGold Ashanti Limited

The stock's modest year-to-date uptrend hasn't impressed bearish speculators

by Elizabeth Harrow (eharrow@sir-inc.com) 11/3/2009 12:12 PM

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Put volume jumped yesterday on AngloGold Ashanti Limited (AU: sentiment, chart, options), with activity surging to twice the expected level in the wake of the mining issue's third-quarter earnings report. During the course of the session, traders on the International Securities Exchange (ISE) bought to open 2,336 puts on AU, compared to just 99 calls. The stock's single-day put/call volume ratio of 23.60 reveals a clear preference for bearish bets over their bullish counterparts.

AU SOIR In fact, AU's put options have rarely been in greater demand among speculators on the ISE. The stock's 10-day ISE put/call volume ratio stands at 4.12, with puts bought to open more than quadrupling calls during the past two weeks. This ratio ranks higher than 99.1% of other such readings taken within the previous year, marking a near-peak of pessimistic option activity on the exchange.

As a result of the recent trend toward puts, AU's Schaeffer's put/call open interest ratio (SOIR) has shot higher from its Oct. 19 post-expiration perch of 0.47, which marked an annual low for the indicator. Today, the equity's SOIR arrived at 0.55, in the 10th annual percentile -- revealing that skepticism is on the rise, and there's still plenty of room for the pendulum to keep swinging toward the bearish end of the sentiment spectrum.

In the front-month series, peak put open interest of 4,009 contracts lies at the 40 strike. Meanwhile, AU's November 45 strike is home to peak call open interest of 6,480 contracts. With the stock trading just fractionally above $40 at last check, both bullish and bearish bettors are favoring out-of-the-money options. This points to widespread expectations for a noteworthy price change in the shares prior to expiration.

AU open interest Just as option players are taking a pessimistic stance toward AU, short sellers are also increasing their bets on the stock's decline. Short interest surged by 25.8% during the most recent reporting period, and now accounts for 1.1% of the equity's available float. This is currently a rather slim accumulation of shorted shares, but a continuation of this activity could keep AU under pressure during the near term.

Zeroing in on Monday's trading, the most active put was the January 2010 35 strike. This option saw 1,075 contracts cross the tape, sending implied volatility up 1.6%. However, open interest on this back-month put fell overnight from 6,103 contracts to 6,083 contracts, suggesting that some traders liquidated their positions here yesterday. These puts were not in the money at any point during yesterday's session, so it's possible that traders were buying to close sold puts at this strike.

The day's option activity followed AU's confession Monday morning that it swallowed a third-quarter loss of $1.06 billion. The South African gold producer exited a number of forward sales contracts during the quarter, investing $797 million to restructure its hedge book in the face of soaring gold prices.

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Option Activity Alert: Bears Bet Against AngloGold Ashanti Limited

The stock's modest year-to-date uptrend hasn't impressed bearish speculators

by Elizabeth Harrow (eharrow@sir-inc.com) 11/3/2009 12:12 PM

AU

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