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Freeport-McMoRan Inc (FCX) Options a Bargain Ahead of Earnings

Freeport-McMoRan Inc (FCX) options traders seem to be expecting the stock to make another upside move after earnings

Jan 24, 2017 at 11:29 AM
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Mining issue Freeport-McMoRan Inc (NYSE:FCX) is going to step into the earnings spotlight ahead of the open tomorrow. Ahead of the event, the stock is presenting an unusually attractive opportunity for options buyers. And while the shares have been barreling higher over the past year, options traders can't seem to stop betting on more upside for FCX.

Upcoming earnings typically lead to higher volatility expectations, but FCX currently sports a 30-day at-the-money implied volatility of 48.8% -- in the low 8th percentile of its annual range. Plus, its Schaeffer's Volatility Index (SVI) of 48% sits just 6 percentage points from an annual low. Simply stated, the equity's near-term options are pricing in historically low volatility expectations right now. What's more, the stock's Schaeffer's Volatility Scorecard (SVS) of 92 indicates FCX has made bigger moves over the past year, compared to what the options market has priced in.

As far as specific expectations, it's clear FCX options traders are eyeing more upside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have purchased 2.34 calls for every put over the past 10 days -- a call/put volume ratio in the bullishly skewed 89th annual percentile. Plus, FCX has a Schaeffer's put/call open interest ratio (SOIR) of 0.53, meaning call open interest roughly doubles put open interest among options set to expire within three months. This reading represents an annual low, as a matter of fact.

Upbeat expectations ahead of earnings make sense, given FCX's recent history. The stock has moved higher in the session after reporting for the past five quarters in a row, including a single-day rally of 6.6% last January. Accounting for the past eight quarters, the shares have made an average one-day move of 3.6% in either direction, but the options market is currently pricing in a wider 6.7% swing for Wednesday.

FCX calls are trading at breakneck speeds today, too, crossing the tape at triple the average intraday rate. While now is an attractive time to buy premium on short-term FCX strikes, at least one options trader seems to be selling new positions. Specifically, a sweep of 8,300 March 18 calls appears to have been sold to open this morning. If this is the case, the call writer is betting on the $18 level serving as a ceiling for the stock over the next couple of months.

With earnings less than a day away, FCX stock is already on the rise, up 5.6% at $16.60, after hitting a fresh annual high of $16.61 earlier. Gains are certainly nothing new for the security, which has added a jaw-dropping 321% year-over-year, with its rising 10- and 50-week moving averages providing support.

But not everyone is in Freeport-McMoRan Inc's (NYSE:FCX) bullish corner. Three-fourths of the brokerage firms following the stock still rate it a "hold" or worse, while the average 12-month price target sits well underfoot, at $13.85. A positive earnings report tomorrow may hold the key to changing analysts' minds, and a round of upbeat attention could keep FCX's long-term rally alive.

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