Put Trader Makes Risky Bet as Freeport-McMoRan Stock Sinks

A put ratio spread is a risky options strategy

by Patrick Martin

Published on Oct 10, 2018 at 2:39 PM

The shares of Freeport-McMoRan Inc (NYSE:FCX) are down 2.2% to trade at $12.90, after Barclays initiated coverage on the mining stock with an "underweight" rating. While the analyst in coverage set a "positive" recommendation on the North American mining sector, they expressed concern about FCX's low growth and weak project pipeline. Options volume, meanwhile, is in overdrive.

Nearly 25,000 puts have been traded -- double what's typically seen at this point in the day, with volume pacing in the 89th annual percentile. Much of the action has centered at the January 2019 series, where data from the International Securities Exchange (ISE) confirms 2,000 12-strike puts were bought to open at the same time twice as many 10-strike puts were sold to open, likely creating a put ratio spread.

If this is the case, FCX will ideally settle right at $10 at January options expiration, allowing the trader to reach their full potential profit. It's a risky bet, though, considering a drop below $10 could result in substantial losses, considering one of the sold puts is uncovered.

Outside of the options pits, short interest up nearly 7% in the last reporting period to 25.57 million shares. However, this represents only 1.8% of FCX's total available float -- just 1.4 times the average daily trading volume -- meaning there's room aboard the bearish bandwagon.

Looking at the charts, it's not surprising to see increased pessimism toward Freeport-McMoRan stock, which is headed toward its third straight weekly loss. The shares have carved out a channel of lower highs and lows since mid-July, with breakouts contained by their 50-day moving average. Overall, FCX has shed 32% in 2018, and is close to its Sept. 11 annual low of $12.18. 

Daily Stock Chart FCX

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