By Michael J. Zerinskas
While the precious metals sector has been on fire for quite some time now, Harmony Gold Mining Company Limited (HMY) has seen an influx of activity over the past few days and is quickly becoming the hot miner on the scene.
Where could HMY be heading next?
Bulls: Shares of HMY had been in a steady uptrend for the past twelve months, which was broken at the beginning of this year. While that could have spelled trouble for the name, share volume accelerated higher over the coming months and the stock has completely obliterated shorts and resistance levels to the upside.
Momentum is clearly on its side with the 20-day, 50-day, and 200-day moving averages all upsloping. Call volume has been sky-rocketing over the past few days as well, with large customers buying upside in both naked calls and call spreads.
A bullish trader could consider buying the $15/16 call spread for a net debit of $0.35. Max gain is taken when shares trade over $16.00, when the spread is worth +$0.65, a 185% gain.
Bears: Bears will note that, while gold futures prices have been moving higher, the stock's recent move is outsized. Harmony Gold should therefore be due for a pullback, at least; this is supported by the vast overbought conditions.
Bears will also indicate that some of the call activity seen over the past few days was due to volatility plays and, perhaps, purchasers of hedges to newly formed short positions.
A bearish trader could consider buying the May $13.00 puts outright for $0.25, as it is carrying little to no premium over overall implied volatility and is trading at a discount to historical vol.
Harmony Gold Mining Company Limited is engaged in underground and surface gold mining and related activities, including exploration, processing and smelting. As at June 30, 2010, its mining operations reported total probable reserves of 48.1 million ounces, primarily from South African sources.
During the fiscal year ended June 30, 2010, the company processed approximately 19.8 million tons of ore. In fiscal 2010, 96% of its total gold production took place in South Africa. In fiscal 2010, approximately 91% of its South African gold came from underground mines, and approximately 9% came from its surface operations, which include the Kalgold opencast operation and the Phoenix operation.