Unusual Options Activity for Sibanye Gold (SBSW) Points to a Solid Opportunity

By established logical deductions, precious metals-related investments such as Sibanye Gold (SBSW) shouldn’t perform well in an environment where seemingly higher benchmark interest rates appear to be a given. After all, the Federal Reserve aggressively hiked rates throughout 2022 and the consequences of such could be a possible global recession. And to be fair, in the trailing year, SBSW stock dipped 15.5%.

However, in the past six months, shares gained nearly 9% of equity value. Fundamentally, the fear trade (or a defensive posture to protect against uncertainty) may have bolstered the underlying gold price. At the moment, hours after the first market session close of 2023, gold futures find themselves priced at just under $1,845. In the trailing month, futures contracts for the yellow metal gained approximately 3.6%.

For full disclosure, it’s not absolutely certain that the FEd will continue raising borrowing costs in the new year, with some contrarian voices suggesting that it could start cutting rates. Still, per the AP, the consensus assumption points to greater monetary tightening.

“The Fed made clear, in a statement and a news conference by Chair Jerome Powell, that it thinks sharply higher rates are still needed to fully tame the worst inflation bout to strike the economy in four decades,” wrote journalist Christopher Rugaber.

One critical factor that could be driving up gold and underlying investments like SBSW stock is that despite the Fed’s measures, core fundamentals acted as headwinds against the hawkish strategies. As another AP report mentioned, for nearly nine months, policymakers hiked rates and “for just as long, the job market hasn’t seemed to get the message.”

In other words, if the robust labor market flaunted its apparent disassociation from key borrowing costs, then it’s not implausible that other established relationships – such as between gold and interest rates – will also incur modulation.

And it appears that options traders sense a long-side opportunity with Sibanye Gold.

SBSW Stock Attracts Unusual Options Volume

Following the close of the Jan. 3 session, SBSW stock represented one of the highlights in Barchart.com’s screener for unusual stock options volume. This stat shows the difference between the current volume and the average volume over the past month. Traders usually leverage this data to determine which stocks may be due for big moves ahead.

Specifically, SBSW’s volume level reached 12,478 contracts against an open interest reading of 122,864. Call volume hit 10,706 contracts versus put volume of 1,772. Further, the delta between the trailing-month average total volume versus the Friday session volume came out to 447.52%. The implied volatility (IV) rank hit 16.77%, which indicates the (at the money) average IV relative to the highest and lowest values over the trailing one-year period.

To summarize, IV signifies the expected volatility of a stock over the life of an option. As certain influencing factors for the underlying investment changes, the IV will likely change as well. Further, as demand for an option increases, so too will its IV.

The IV low for SBSW stock was 42.95% on Dec. 21, 2022. Several months earlier on March 8, SBSW hit its IV high at 79.79%. Prospective investors should note that per Barchart.com’s technical analysis gauge, SBSW ranks as an average 32% buy. SBSW’s short and medium-term indicators generally rate bullishly, while its long-term indicator points to a split sentiment. This make sense given the stock’s contrast between recent gains versus its red ink overall for 2022.

At time of writing, most covering analysts maintain a strongly optimistic view regarding SBSW stock. Three months ago, Wall Street experts rated shares as a “strong buy,” breaking down as six strong buys and one hold. In the current month, the consensus remains the same. However, five analysts see Sibanye as a strong buy while two view it as a hold.

Also, investors should note that SBSW stock currently features a 60-month beta of 1.49, which is conspicuously more volatile than the benchmark equities index. Thus, prospective buyers should exercise caution.

Geopolitical Dynamics Also Favor Sibanye Gold

Even before the new normal, Sibanye Gold attracted investors because of its geopolitical profile. Located in South Africa, the country isn’t exactly the bastion of stability. Nevertheless, per the U.S. Department of State, since the end of apartheid, the U.S. and South Africa “have built a solid bilateral relationship.”

While challenges exist, they pale in comparison to the difficulties the current and prior presidential administrations had with China and more recently Russia. For those banking on SBSW stock, this geopolitical framework may cynically bolster the underlying company’s valuation.

Beyond gold, Sibanye produces elements from the platinum group metals (platinum, palladium, rhodium, iridium, ruthenium and osmium) along with lithium. The two sets of resources will be crucial, both in terms of contemporary applications as well as the industries of tomorrow. For instance, if the U.S. and its allies are serious about the electrification of mobility, Sibanye can potentially help fill the supply outflow gap that Russia effectively vacated because of its invasion of Ukraine.

With options traders bidding up SBSW stock, the enthusiasm only serves to underscore an already compelling fundamental narrative.

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On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.