Newmont Corp (NYSE:NEM) has easily ranked among the top players in the market recently, thanks largely to the blistering rally in the underlying gold market. Given the excitement over precious metals — which stems from several catalysts, including central bank acquisitions and rising industry demand — it’s understandable that some analysts are incredibly bullish on the long-term prospects of gold miners. Still, it’s important to note that two things can be true at the same time.
Obviously, there’s no doubting the mercurial ascent of gold. In terms of NEM stock, the security is up almost 21% on a year-to-date basis. Further, anticipation is palpable for Newmont’s upcoming Feb. 19 earnings report, where analysts expect the mining giant to deliver earnings per share of $1.91 on revenue of $6.01 billion for the fourth quarter. These figures would represent a sizable boost from the year-ago quarter’s print of $1.40 and $5.65 billion, respectively.
However, it’s also possible that much of the optimism has already been priced into NEM stock. As such, the next earnings report would likely have to deliver a remarkable performance for investors collectively to move the needle. While such an outcome cannot be ruled out, it’s a highly risky wager. Not only that, the smart money appears somewhat skeptical of this thought process.
Primarily, volatility skew provides an important clue about high-level sentiment. This screener identifies implied volatility (IV) — or a security’s potential kinetic output — across the strike price spectrum of a given options chain. For the Feb. 20 expiration date (the day after earnings), the hedging activity appears to prioritize downside insurance.
In particular, the skew shows elevated put IV pricing relative to calls at the lower strike price boundaries, reflecting that downside movements represent a non-trivial risk. As such, the smart money seeks protection for that possibility. On the upper strike boundaries, call IV is relatively muted in relation to put IV, which suggests that the hope of extracting upside profitability is not a priority.
In my opinion, that’s information by omission. With gold fever in full pitch on the retail side, you would expect that if the smart money felt the same way, a pronounced spike in the skew would materialize.
It hasn’t materialized — and I think you need to note …