At-the-money puts suggest potential decline.
The December 20th $10 put options on Freeport McMoRan (FCX) saw over 8,100 contracts trade, a 57-fold increase over the prior open interest of 143 contracts.
With 84 days left to go, and with shares right at $10.00, the option should increase in value with any dollar-for-dollar drop in shares. With the option trading around $0.80, shares would need to only drop to $9.20 for the option holder to start making money on the trade.
- 250 Stocks to Sell Now
Investing legend Louis Navellier’s list of toxic stocks includes dozens of big-name blue chips… former Wall Street darlings…
And even stocks in industries that are considered “safe,” like banks and utilities.
Time is running out to make sure you don’t own any of these “SELL”-rated stocks.
Freeport McMoRan has seen shares trade as high as $14 and as low as $8.50 in the past year. At the low, the option holder would see their options trade around $1.50 at expiration, nearly a double.
Action to take: Given the volatility in the copper space thanks to multi-year lows for the metal, there are plenty of ways to play this company. Investors may want to consider buying shares under $10, and selling an $11 or $12 call option a few months out to offset some of the volatility. Traders who think copper is going higher could buy a call option, such as the June 2020 $10 call.
For a bearish bet, the December trade is a play on a market selloff or surge in trade war fears before the end of the year. We prefer the June $10 puts instead, which have more time for a selloff in shares to play out.