Shares of mining giant Freeport-McMoRan (FCX) are down 21 percent over the past year thanks to a slide in recent months. One trader sees the possibility for a rebound ahead in the coming months.
That’s based on the February $33 calls. With 224 days until expiration, 10,047 contracts traded compared to a prior open interest of 101, for a 99-fold surge in volume on the option. The buyer of the calls paid $2.74 to get into the trade.
Shares recently traded around $27, so it would take a rally of just over 22 percent for the option to move in-the-money. The strike price is well under the stock’s 52-week high of nearly $52 per share.
A strong rise in metals prices, particularly copper, has led to a surge higher of nearly 113 percent in earnings for the company in the past year. Plus, profit margins have topped 21 percent, a great margin for a commodity-producing company.
Action to take: Shares look fairly valued here at around 8 times forward earnings, although they may get a bit cheaper in the coming months. Buyers can now get a dividend yield of about 2.2 percent, slightly above normal. The payout is still on the low side relative to earnings, so it has room for future growth.
For traders, the calls are an inexpensive way to bet on a rebound in shares later this year. Traders should look to scale into the trade, taking advantage of down days in the stock to buy the options more cheaply in the coming weeks.
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 of the companies mentioned in this article.