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Option Brief: Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) has shed 3.9% today to linger near $32.51, despite saying that a power shortage in the Republic of Congo will have no immediate impact on its current operations. Amid this technical setback, put volume has soared to four times the typical intraday levels, causing FCX's 30-day at-the-money implied volatility (IV) to rise 5.6% to 25.0%.
Diving deeper reveals that not all of today's put activity is of the traditional bearish variety. The equity's May 31 put has received notable attention, and of the 3,354 contracts traded, 81% have changed hands on the bid side, pointing to seller-driven activity. Volume outstrips open interest at this out-of-the-money strike, indicating the initiation of new positions.
By selling the puts to open, the speculators are expecting the $31 level to hold as support for FCX through the close on Friday, May 16. In this best-case scenario, the options will expire worthless, and the traders can retain the initial net credit as their full potential reward. However, today's activity could also be reflective of investors hoping to scoop up shares of FCX on a dip, establishing $31 as an ideal entry point.
Regardless of the motive, now is an opportune time to sell premium on this specific strike, as IV for the May 31 put is inflated relative to Freeport-McMoRan Copper & Gold Inc.'s (NYSE:FCX) 60-day historical volatility (27% vs. 22.9%). In other words, premium here is pricier than usual, from a volatility perspective.