Are Freeport-McMoRan Inc (FCX) Options Traders Placing Losing Bets?

Even though the stock has outperformed in 2016, Freeport-McMoRan Inc (NYSE:FCX) put options remain popular

by Josh Selway

Published on Jun 10, 2016 at 11:43 AM
Updated on Jun 10, 2016 at 11:47 AM

Mining stock Freeport-McMoRan Inc (NYSE:FCX) is trading 3.2% lower today at $10.55. Aside from the broad-market headwinds, traders are responding to news that the company eliminated the Office of the Chairman structure at Wednesday's annual meeting, while shareholders also voted in favor of a new compensation plan for Freeport-McMoRan executives. Still, FCX -- which is up 56% in 2016 -- is seeing familiar support just above the $10 level, home to its rising 80-day moving average. Regardless, FCX options traders continue to bet against the stock. 

For instance, FCX put volume is running at an accelerated rate today, nearly holding pace with call volume in the process. The most popular option by far is the weekly 6/10 10.50-strike put. While it looks like some traders are selling to close their positions amid today's slide, others are initiating fresh long positions. As such, they're betting on FCX falling further through today's close, when the weekly options series expires. 

This bearish backdrop is nothing new from FCX options traders, though. The stock's Schaeffer's put/call open interest ratio (SOIR) comes in at 1.79, meaning put open interest almost doubles call open interest among options expiring within three months. What's more, this SOIR outranks 95% of the past year's reading, making this put-skew highly unusual. Also, considering that more than 30,000 contracts are in residence at the underfoot June 10 strike put, it's possible an unwinding of this bearish sentiment could drive FCX stock higher in the near term. 

Analysts are extremely bearish, as well. In fact, 12 of 15 brokerage firms call FCX a "hold" or "strong sell," and the stock's average 12-month price target sits just barely overhead, at $10.91. This suggests a round of bullish analyst attention could be coming FCX's way if the stock continues its strong technical performance. The fact that short sellers have been throwing in the towel -- short interest fell by almost 21% in the last two reporting periods -- only makes the contrarian case for Freeport-McMoRan Inc (NYSE:FCX) that much more appealing. 

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