2 Copper Stocks to Watch in a Post-Trump Era

Mining stocks Freeport-McMoRan Inc (FCX) and Rio Tinto plc (ADR) (RIO) have been in focus as copper prices rise to 17-month highs post-Trump

Nov 29, 2016 at 12:56 PM
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Copper prices have been surging in the wake of the U.S. presidential election, with demand for the base metal buoyed by expectations President-elect Donald Trump will unveil a massive infrastructure plan. Last Friday, in fact, copper futures hit a 17-month peak (subscription required), as the U.S. dollar's recent ascent stalled. Speculative players appear to be positioning for more upside for copper, too, based on the latest Commitment of Traders (CoT) report. Specifically, the data showed the third largest net long position ever by large speculators of 46,269 -- the most extreme reading since 2003. Options traders appear to be getting in on the action, as well, with mining stocks Freeport-McMoRan Inc (NYSE:FCX) and Rio Tinto plc (ADR) (NYSE:RIO).

Options traders have been growing increasingly skeptical of FCX. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio has jumped to 0.83 from 0.55 in the past two weeks, and now ranks in the elevated 66th annual percentile. Drilling down, the stock's December 14 put has seen one of the biggest increases in open interest over this time frame, with 12,427 contracts added. According to the major options exchanges, a healthy portion of this activity has been of the buy-to-open kind, meaning traders are bracing for -- or protecting against -- a drop below $14 by front-month options expiration at the close on Friday, Dec. 16.

This accelerated put activity is being witnessed today, too, with nearly 24,000 FCX puts traded -- 1.3 times what's typically seen at this point in the day. It looks as if traders are purchasing new positions at the weekly 12/2 15.50-strike put, expecting the stock to extend today's retreat through week's end, when the weekly series expire. In fact, FCX stock was last seen down 5.1% at $14.97, as commodity prices tumble in the wake of this morning's strong third-quarter gross domestic product (GDP) reading. Nevertheless, shares of Freeport-McMoRan Inc remain up 121% year-to-date, and hit an annual high of $16.42 last Wednesday.

Although puts are trading at 1.4 times the average intraday pace in RIO's options pits today, the longer-term trend has been toward calls. At the ISE, CBOE, and PHLX, for instance, speculative players have bought to open 7,971 calls in the past 10 sessions, compared to 586 puts. Plus, the resultant call/put volume ratio of 13.60 ranks just 6 percentage points from a 52-week peak. Additionally, 93,112 calls are currently outstanding on RIO -- in the 98th percentile of its annual range -- and call open interest topped out at a 12-month high of 28,901 contracts on Nov. 9, the day after the U.S. presidential election.

On the charts, shares of Rio Tinto plc topped out at an annual high of $40.19 on Nov. 10. Today, though, the stock is off 1.8% on reports the miner's $3 billion impairment charge related to a Mozambique coal deal is being investigated by the Securities and Exchange Commission (SEC), and that Rio Tinto is asking Chinese mills to pay a premium for iron ore. Nevertheless, RIO was last seen at $38.76 -- a roughly 50% retracement from its 2011 highs.

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