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Freeport-McMoRan Copper & Gold Inc. (FCX) Bears Bet On Pullback

Freeport-McMoRan Copper & Gold Inc. put buying continued yesterday

by 1/22/2014 11:11 AM
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Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) experienced heightened levels of put trading yesterday, with 55,000 contracts crossing the tape -- more than three times the daily average, and more than the 39,000 calls exchanged. A number of positions experienced notable activity, including the weekly 1/24 33.50-strike put, where 4,838 contracts -- including a block of 2,312 -- changed hands.

Half of the volume at that out-of-the-money strike traded at the ask price, suggesting the contracts were purchased. Meanwhile, implied volatility soared and open interest picked up 4,756 contracts overnight, making it safe to assume new bearish bets were initiated.

By purchasing the puts, Tuesday's traders anticipate FCX will breach the 33.50 strike by the closing bell this Friday, when the weekly options expire. With the shares currently down 1.2% this morning -- after declining copper and gold prices negatively affected the stock's fourth-quarter profit -- to trade at $34.83, the security is just a 3.8% dip away from in-the-money territory. Even if the shares remain perched above $33.50 through week's end, the most the put buyers will sacrifice is the initial premium paid.

From a broader perspective, yesterday's preference for short-term puts over calls was business as usual. Schaeffer's put/call open interest ratio (SOIR) for FCX sits at 0.90, which registers just 6 percentage points from an annual put-skewed extreme.

On the charts, however, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) has put on an impressive display. Since hitting a multi-year low of $26.37 in late June, the stock has rallied 32%. As such, delta for the aforementioned option is docked at a slim negative 0.078, representing a 7.8% chance that it will expire in the money. In fact, an unwinding of long puts in the coming days and weeks could translate to contrarian upside for FCX shares.


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