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Freeport-McMoRan Copper & Gold Inc. (FCX) Traders Place Downside Bets

Freeport-McMoRan Copper & Gold Inc.'s weekly 5/30 34-strike put was active yesterday

by 5/28/2014 9:01 AM
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Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) calls traded at a significantly quicker clip than puts yesterday. In fact, eight of the 10 most active strikes occurred on the call side of the fence. However, the most active option was a put scheduled to expire at the end of this week. Against this backdrop, the mining stock's 30-day at-the-money implied volatility (IV) rose 6.8% to close at 19.1%.

Diving right in, FCX's weekly 5/30 34-strike put was most popular, with more than 2,300 contracts changing hands throughout the course of Tuesday's session. Over three-quarters traded at the ask price, IV surged at the strike, and open interest added roughly 1,600 contracts overnight, collectively hinting at buy-to-open activity.

With FCX's 1.4% loss yesterday -- which landed the shares at $33.96 -- the weekly options are right at the money. However, the buyers will not profit at expiration unless the equity is sitting below breakeven at $33.76 (strike less the volume-weighted average price of $0.24) -- a level not breached on an intraday basis since May 9. Additional gains will be secured with each step south of that mark, as well. On the other hand, if the security muscles back above $34 through the option's lifetime, the traders still holding onto the puts will be at risk of forfeiting the initial premium paid.

From a wider perspective, yesterday's put buyers were part of a larger trend in Freeport-McMoRan Copper & Gold Inc.'s (NYSE:FCX) options pits. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a put/call volume ratio of 0.50 -- higher than more than three-quarters of all similar readings, looking back one year.

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