Freeport-McMoRan IPO Pop Has Option Traders Wanting More

Freeport-McMoRan Inc (NYSE:FCX) is higher, after its oil-and-gas unit filed for an initial public offering

Jun 24, 2015 at 12:18 PM
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Freeport-McMoRan Inc (NYSE:FCX) is soaring today -- up 3.8% at $20.86 -- on reports its Freeport-McMoRan Oil & Gas Inc unit has filed for an initial public offering of up to $100 million. The positive price action has sparked a rush of call activity in FCX's options pits, with the contracts crossing at two times the average intraday pace.

Drilling down, FCX's weekly 6/26 21-strike call -- which expires at this Friday's close -- has seen the most action, with over 6,700 contracts on the tape so far. It appears new positions are being bought to open here for a volume-weighted average price (VWAP) of $0.16, making breakeven $21.17 (strike plus VWAP) -- in line with today's intraday peak.

Widening the sentiment scope reveals today's accelerated call activity is just more of the same. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), FCX's 10-day call/put volume ratio of 4.24 ranks in the 90th annual percentile. In other words, calls have been bought to open over puts with more rapidity just 10% of the time within the past year.

This glass-half-full approach has spilled outside of the options pits, as well, where 64% of analysts maintain a "buy" or "strong buy" rating toward FCX and the average 12-month price target of $25.33 sits in territory not seen since early December. Additionally, a low 4.2% of the stock's float is sold short, and would take less than three sessions to cover, at average daily trading levels.

This optimism is a bit surprising, given FCX's long-term technical troubles. In fact, since hitting an annual high of $39.32 last July, shares of Freeport-McMoRan Inc (NYSE:FCX) have surrendered 47%. Meanwhile, today's advance is being containted by the security's 40-day moving average -- a trendline that served as resistance in March. Should the stock resume its downtrend, an unwinding of the optimism could translate into additional losses.

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