Freeport-McMoRan Call Options Hot as Copper Prices Plummet

Short-term strikes are in focus as FCX stock sinks

Aug 15, 2018 at 2:31 PM
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Mining stocks are getting hit today, as copper prices plunge into bear-market territory amid strength in the U.S. dollar and following a round of disappointing Chinese economic data. One of the names feeling the heat is Freeport-McMoRan Inc (NYSE:FCX) -- last seen down 7.9% at $13.64 -- but options traders are keeping the faith.

With about two hours left to go in today's trading, around 96,000 calls and 36,000 puts have changed hands on FCX -- three times what's typically seen, and volume pacing in the 98th annual percentile. Most active are the weekly 9/14 14.50-strike and September 14 calls, due to what looks like either a long call calendar spread or a roll out and down.

Elsewhere, another trader appears to have bought to open 1,601 weekly 8/31 14.50-strike calls for 18 cents apiece. If this is the case, breakeven for the call buyer at the close on Friday, Aug. 31, is $14.68 (strike plus premium paid), or 7.6% above FCX stock's current price.

Today's call-skewed trading is nothing new 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 41,620 calls over the past 10 sessions, compared to 4,538 puts. The resultant call/put volume ratio of 9.17 ranks in the 94th annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

Drilling down, the August 16 call has seen the biggest increase in open interest over this two-week time frame, with 15,883 contracts added. Data from the major options exchanges confirms notable buy-to-open activity here, meaning options traders are expecting the stock to settle above $16 at this Friday's close.

Looking at the charts, FCX rallied hard off its late-November lows near $13.20, eventually topping out at a two-year high of $20.25 on Jan. 25. The mining shares have struggled since, however, and are once again testing a familiar floor in the $13.50 neighborhood.

fcx stock weeky chart aug 15

 

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