Freeport-McMoRan Inc (FCX) Jumps On Icahn Arm-Twisting

Freeport-McMoRan Inc (NYSE:FCX) said today it has reduced the size of its board and is contemplating the sale of its oil-and-gas division

by Karee Venema

Published on Oct 6, 2015 at 12:16 PM
Updated on Oct 6, 2015 at 12:19 PM

In the wake of announcing a billion-dollar-stock offering, Freeport-McMoRan Inc (NYSE:FCX) said today has reduced the size of its board to nine from 16, and is contemplating separating its oil-and-gas division. The move reportedly comes amid some arm-twisting from activist investor Carl Icahn, who unveiled a major stake in FCX in late August. The news has the shares up 4.6% to $11.69 at midday -- a much-needed boost for a stock that's staring at a 50% year-to-date deficit.

Option traders, meanwhile, are rushing toward the security's calls in intraday action, with the contracts crossing at two times what's typically seen at this point in the day -- and outpacing puts by a nearly 3-to-1 ratio. It looks as if a number of traders are selling to close their in-the-money October 11 calls -- site of peak call open interest in the front-month series -- ahead of next Friday's expiration.

Elsewhere, it appears as if new positions are being purchased at FCX's weekly 10/9 12-strike call, as speculators roll the dice on extended upside through week's end. The $12 mark has served as a stern level of resistance  in recent months, though, with the security only notching one daily close north of here since late July. Regardless of where the equity settles, the most the call buyers stand to lose is the initial premium paid.

More broadly speaking, today's call-skewed session is just status quo in FCX's options pits. Over the past 20 sessions, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 91,546 FCX calls compared to 75,500 puts.

Echoing this is the security's Schaeffer's put/call open interest ratio (SOIR) of 0.86. Not only does this show that call open interest outweighs put open interest among options expiring in three months or less, but it ranks lower than 82% of all similar readings taken in the past year. In other words, short-term speculators are more call-skewed than usual toward FCX.

This optimism is seen outside of the options arena, too. In fact, eight of 13 analysts maintain a "buy" or better rating on Freeport-McMoRan Inc (NYSE:FCX), with not a single "sell" to be found. Plus, the average 12-month price target of $14.83 stands at a 27% premium to current trading levels. Should the shares resume their longer-term downtrend, a capitulation among option bulls and/or a round of bearish brokerage notes could translate into a fresh wave of selling pressure.

A Schaeffer's exclusive

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