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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: John Hunt who wrote (33737)	5/12/1999 2:31:00 PM
From: donald martin	Respond to of 116764

<<The sale is naked unless covered by gold in a warehouse ... Until they actually mine it, it just provides security for their naked short.>> For exchange rule purposes, it might be "naked". But, in Barrick's case, it's covered by what they have in the ground. Going back to why I say it's an operational risk... Let's say Barrick thinks they can mine in the year 2002 at a cost of $200/oz. They decide they'd like to lock in a $100/oz profit on some of their production today rather than risk that gold might go to ???? (put a number here...I still can't believe we're where we are right now). If gold goes up to $800/oz, they're not "out" $500. They've foregone an addition $500 gain on the gold they will mine, BUT that is the cost of avoiding the risk that gold will be below $300 in 2002. IF for some reason(s) their costs go from their estimated $200/oz (and these are my numbers to make this example, only) to $300/oz... THAT is where their risk lies. Let's say you bot some ABX today at 19 and immediately sold a January 2002 LEAP $45 call on it. And in 2002 ABX is at $90. You're not out $45. You just have a $26 gain (plus premium) instead of a $71 gain. Barrick's "naked" short is only a naked due to a technicality.