Mining Stock Contends With Rocky Post-Earnings Past

Options bears are circling the stock ahead of its first-quarter report

Digital Content Manager
Apr 23, 2020 at 2:25 PM
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Freeport-McMoRan Inc (NYSE:FCX) is up 4.7% at $7.99 today, as investors anticipate  the copper mining concern's first-quarter earnings report, due out before the open tomorrow, April 24. It's been a rocky week for commodities, as Wall Street nervously eyes mining stocks amid oil's historically devastating plummet. Despite this turbulence, however FCX has found solid support at its intersecting 20- and 30-day moving average, and is up 16% this quarter.

FCX Apr 23

The stock has captured the attention of options bears today, with 22,000 puts exchanged so far -- 1.8 times the intraday average -- compared to 13,000 calls. The most popular contract by far is the monthly June 8 put, followed by the weekly 4/24 8-strike call. 

These bearish bets had been picking up steam in the options pits prior to today. This is per FCX's 10-day put/call volume ratio of 0.73 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 98% of all other readings from the past 12 months. This means that while calls are still outnumbering puts on an overall basis, options traders' appetite for the latter is unusually high right now. 

On the other hand, the brokerage bunch is still quite optimistic, with 10 of the 14 covering Freeport-McMoRan calling it a "strong buy," and not a single "sell" to be seen. Additionally, the consensus 12-month price target of $11.60 is a lofty 44.8% premium to current levels. 

History, meanwhile, doesn't bode well for FCX ahead of tomorrow's report. In the past two years, the security suffered negative next-day returns 75% of the time, including a 13.1% nosedive back in January 2019. This time around, the options pits are pricing in a post-earnings move of 12%, which is almost double the 6.8% swing FCX averaged after these past eight report, regardless of direction. 

Despite the high implied volatility environment heading into earnings, the equity's Schaeffer’s Volatility Index (SVI) of 90% is in the 30th percentile of its annual range, suggesting options have been pricing in relatively low volatility expectations right now. Plus, FCX's Schaeffer's Volatility Scorecard (SVS) sits high at 94 (out of 100), showing that the stock has tended to exceed option traders' volatility expectations during the past year, a good thing for option buyers.

 

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