Gold Fields (GFI) is off 89 cents to $11.05 after gold prices plummeted $37 to $1075 an ounce Thursday. In the options market, morning trades include Apr 12 – 14 call spreads, apparently sold at 27 cents, 7000X. It might roll a position down in strikes (that is, buy to close 14s and sell to open 12s.) Yesterday, GFI saw an opening seller of 7900 Jan 12.5 calls at $1.65 and probably part of a buy-write because it was tied to shares at $11.95.
So, it appears that call writers are dominating the recent activity and possibly creating buy-writes in the gold miner. Also known as a “covered call”, the buy-write is simply buying shares and writing calls. In most buy-writes, the investor sells 1 call for every 100 shares. Yesterday, for instance, the strategist bought shares at $11.95 and sold calls at $1.65. The cost basis for owning shares falls to $10.30 (11.95 – 1.65), excluding commissions. The upside is also limited in the buy-write because, if shares move above the call strike prices, the options will be assigned. In this case, if GFI moves beyond $12.50, the calls will be assigned at $12.5 at January expiration for a 21.35 percent gain (over the cost basis).
