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Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) brushed off Wednesday's bearish brokerage note -- and unresolved copper export dispute with Indonesia -- to finish the session 2.7% higher at $37.83, and above its year-to-date breakeven mark. The move north sparked a flurry of call activity in the stock's options pits, with the contracts trading at nearly five times the daily average. Short-term options were popular, per the equity's 30-day at-the-money implied volatility (IV), which popped 11.3% to 22.9%, its loftiest perch since late April.
By far, the most active option was FCX's September 40 call, where 21,121 contracts changed hands. (As a point of comparison, the next most active strike had 5,970 contracts on the tape at the close.) The majority of the action at this out-of-the-money (OOTM) strike occurred when a massive block of 12,800 contracts traded at the ask price of $0.61 apiece. IV edged higher, and open interest surged overnight, making it safe to assume new positions were purchased.
By buying to open this block of OOTM calls, the speculator expects FCX to rally through the round-number $40 mark -- territory not explored by the stock since November 2012 -- by September options expiration. More specifically, the trader's profit will accrue with each step north of breakeven at $40.61 (strike plus premium paid) FCX is sitting at the close on Friday, Sept. 19. Losses, meanwhile, are limited to the initial cash outlay of $780,800 (number of contracts * premium paid * 100 shares per contract), should Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) settle south of the strike at expiration.