Wednesday, September 9, 2009

How to Profit From Barrick Gold's Public Offering, Up or Down

Barrick Gold is significantly dilluting itself in order to reduce its notorious and infamous gold hedging program. The hedging program was profitable in the 90s, but it was a disaster for the company in the 2000's.

The timing for this offering when gold is touching USD$1,000 leads to two possible conclusions:

1. Is done at the gold peak in order to raise the maximum interest and the maximum amount of investment money. Thus, gold will drop from here.

2. It is done because gold will keep nmoving higher, in which case, Barrick will greatly benefit from the rising prices.

So which way will it go? Nobody knows. Using straddles you can profit either way, up or down. Below are straddles for Barrick using various timeframes. Prices as of 2PM today, after the big drop on the PO announcement.

Computed with the StraddlesCalc V2 tool.

(click to enlarge please)

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