Copper producer Freeport-McMoRan (FCX) is up 44% in the past year, beating the overall S&P 500 by about 10 points. However, one trader is betting on shares pulling back over the coming weeks.
That’s based on the December 20 $40 puts. With 74 days until expiration, 6,566 contracts traded compared to a prior open interest of 147, for a 45-fold rise in volume on the trade. The buyer of the puts paid $0.47 to make the bearish bet.
FCX shares recently traded for just under $50, so the stock would need to decline by $10, or about 20%, for the option to move in-the-money. The strike price is about midway between the stock’s 52-week low of $32.83 and 52-week high of $55.24.
Commodities in general have been trending higher this year, and Freeport has fared well operationally, with earnings up 80% and revenues up by 15%.
Even with its run higher, shares trade at 22 times forward earnings, about on par with the overall stock market.
Action to take: Long-term investors may want to pick up some shares under the $50 range, as the copper producer can likely trend higher in the months ahead.
At current prices, shares also pay a 1.2% dividend.
For traders, the December $40 puts will likely see mid-double-digit returns over the next few weeks, as stocks are likely to be volatile going into the elections. After that, however, the longer-term uptrend in shares looks likely.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.