Freeport-McMoRan Stock Blasted By Put Buyers

Options traders have initiated long puts on Freeport-McMoRan Inc (NYSE:FCX) at a faster-than-usual clip in recent weeks

Feb 14, 2017 at 2:54 PM
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Freeport-McMoRan Inc (NYSE:FCX) is trading down 0.3% at $15.92, as the U.S. dollar strengthens in the wake of Fed Chair Janet Yellen's hawkish congressional testimony -- which, in turn, is pressuring copper prices. Additionally, news the mining firm has halted production at its Grasberg mine in Indonesia amid the country's export ban is weighing on FCX, though the stock has also found a foothold atop its rising 30-day moving average, which served as a springboard for the shares during last week's retreat. Nevertheless, options traders appear to be bracing for additional losses in the near term, with puts trading at an accelerated clip.

Options Traders Target a Bigger Retreat for FCX Shares

By the numbers, 77,174 puts have changed hands so far -- three times what's typically seen at this point in the day -- compared to 21,411 calls. FCX's single-date put/call volume ratio is docked at a top-heavy 2.97, and is on track to settle in the 99th percentile of its annual range, though it remains much lower than the 12-month high of 8.18 set on June 7.

Most active by a mile is the weekly 3/3 14-strike put, where 32,094 contracts have crossed the tape -- including a large block of 14,181 contracts, which was seemingly bought to open for an initial cash outlay of $226,896 (number of contracts * $0.16 premium paid * 100 shares per contract). If this is indeed the case, the goal is for FCX to be sitting south of $14 by expiration at the close on Friday, March 3. This is also the most the speculator stands to lose, should the puts expire out of the money, while profit will accumulate on a move below breakeven at $13.86 (strike less premium paid) -- territory not explored since the start of the year.

FCX Put Buying as a Hedge?

Today's elevated put trading only echoes the recent trend seen in FCX's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 72,213 puts in the past two weeks, compared to 59,962 calls. What's more, the resultant put/call volume ratio of 1.20 is ranked in the 86th percentile of its annual range, meaning puts have been bought to open over calls at a faster-than-usual clip.

Drilling down, the May 12 put has seen the largest rise in open interest over this time frame -- with nearly 56,000 contracts added -- and is now home to the stock's top open interest position of 77,814 contracts outstanding. Data from the major options exchanges indicates the bulk of this action transpired last Friday, Feb. 10, when several massive blocks were bought to open. In other words, options traders are bracing for a steep retreat south of $12 by May options expiration.

Considering FCX hasn't breached the strike since early November, it's likely that some of this activity is a result of shareholders putting protective puts in place. In fact, Freeport-McMoRan Inc (NYSE:FCX) stock has nearly tripled in value on a year-over-year basis, and hit an annual high of $17.06 on Jan. 24.

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