Why the Worst May Not Be Over for Freeport-McMoRan Inc. (FCX)

Pockets of optimism still remain on Freeport-McMoRan Inc (FCX)

by Karee Venema

Published on Jan 14, 2015 at 1:13 PM
Updated on Apr 20, 2015 at 5:32 PM

Mining magnate Freeport-McMoRan Inc (NYSE:FCX) is selling off sharply today -- down 13.2% at $18.28, and earlier hitting a fresh five-year low of $18.26 -- as a drop in copper prices and the World Bank's lowered global growth outlook pressure the shares. As such, the equity has been placed on the short-sale restricted list, and put players are flooding the equity's options pits.

Today's accelerated put volume just echoes the growing trend witnessed on the struggling stock. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), FCX's 10-day put/call volume ratio has jumped to 0.82 from 0.67 since the turn of the calendar year. What's more, the current ratio ranks only 12 percentage points from an annual bearish peak.

Even more telling of options traders' preference for puts is FCX's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 2.90. Simply stated, near-the-money put open interest almost triples call open interest, among options slated to expire in three months or less.

As touched upon, the stock has had it rough on the charts. Specifically, the equity has surrendered half of its value year-over-year, and more recently has underperformed the broader S&P 500 Index (SPX) by north of 35 percentage points during the past three months. Surprisingly, 80% of analysts maintain a "buy" or better rating, with not a single "sell" to be found. Plus, the consensus 12-month price target of $34.28 sits in territory not charted since mid-September. Should Freeport-McMoRan Inc (NYSE:FCX) maintain its downward trajectory, a round of downgrades and/or price-target cuts could create additional headwinds.


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