Freeport-McMoRan Inc (FCX) Calls Hot On Election Day Surge

Freeport-McMoRan Inc (NYSE:FCX) is trading higher with its fellow mining stocks, and call volume is running at an acclerated clip

Nov 8, 2016 at 1:48 PM
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Stocks have swung higher this afternoon, as anticipation grows ahead of the U.S. presidential election results. Mining stocks, in particular, are making big moves, with sector component Freeport-McMoRan Inc (NYSE:FCX) trading up 6.8% at $12.05. The surge has sparked a rush of activity in FCX's options pits -- and with nearly 76,000 contracts traded, volume is at two times the average intraday pace.

Diving deeper, calls have a notable lead over puts, with 51,637 of the former and 24,267 of the latter on the tape. Near-term traders are targeting FCX's November and December 12 calls, where it looks as if new positions are being purchased. If this is the case, the goal is for FCX to continue to rally north of the 12 strike through front- and back-month options expiration, respectively.

Today's call-skewed session is just another day at the office for FCX options traders, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 40,602 calls over the past 10 sessions, compared to 16,911 puts. What's more, the resultant call/put volume ratio of 2.40 ranks in the elevated 88th annual percentile, meaning long calls have been initiated relative to puts at a faster-than-usual clip.

Outside of the options pits, the tone is decidedly more skeptical. Short interest rose 2.1% in the most recent reporting period, and now accounts for a healthy 10% of FCX's float. Plus, with the 121 million shares sold short, these bearish bets are at their loftiest perch since mid-June.

This glass-half-empty approach is shared by the brokerage bunch, as well. Of the 14 analysts covering FCX stock, 10 maintain a "hold" or worse recommendation. Additionally, the average 12-month price target of $11.21 stands at a discount to the security's current perch.

Looking at the charts, FCX has put in a solid showing in 2016, up more than 78%. More recently, the stock took two successful bounces in the $9.25-$9.40 region, after pulling back from its late-July highs near $13.60. As such, it's possible some of the recent call buying -- specifically, at out-of-the-money strikes -- could be a result of short sellers hedging their bearish bets against any additional upside risk. However, should Freeport-McMoRan Inc (NYSE:FCX) continue to rally, a capitulation among short sellers and/or a round of bullish brokerage notes could help propel the mining stock higher.

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