Large Option Traders Betting Freeport-McMoRan Rally Will Continue Into 2020
Freeport-McMoRan Inc (NYSE: FCX) shares have rallied 29.3% in the past three months as investors have become more bullish about the company’s growth strategy and focus on improving its balance sheet.
After years of underperformance, Freeport-McMoRan stock finally seems to be coming alive, and some large option traders are betting the rally is just getting started.
The Trades
On Monday, Benzinga Pro subscribers received 15 option alerts related to unusually large Freeport-McMoRan trades. The following are some of the largest:
From 9:03 a.m. to 9:04 a.m., a trader bought 6,267 Freeport-McMoRan call options with a $14 strike price expiring Feb. 21, 2020 near ask prices ranging from 31 cents to 32 cents. The series of five trades represented a more than $194,277 bullish bet.
From 9:06 a.m. to 9:07 a.m., likely the same trader bought 10,461 Freeport-McMoRan call options with a $13 strike price expiring Jan. 17, 2020 near ask prices ranging from 29 cents to 30 cents. This series of three trades represented a more than $303,369 bullish bet.
From 10:04 a.m. to 10:06 a.m., a trader sold 2,944 Freeport-McMoRan call options with an $11.50 strike price expiring on Friday near bid prices ranging from 60 cents to 66.6 cents. This series of three trades represented a more than $176,640 bearish bet.
At 11:17 a.m., a trader sold 7,979 Freeport-McMoRan call options with a $12 strike price expiring Dec. 20 at the bid price of 43 cents. The trade represented a $343,097 bearish bet.
Of the 15 large Freeport-McMoRan option trades on Monday, nine were calls purchased at or near the ask, trades typically considered to be bullish. The other six were calls sold at or near the bid or puts purchased at or near the ask, trades typically considered bearish.
Why It's Important
Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the rapid-fire nature of many of the Monday morning trades, they could easily be one or more institutions trying to disguise large hedge positions.
Freeport On The Move
Freeport-McMoRan has been focused on its long-term growth plan, which involves increasing underground production at its Grasberg mine, commissioning its Lone Star Arizona project and leveraging technology such as artificial intelligence to improve operating efficiency.
Freeport shares rallied hard following Monday’s open, gaining more than 4% during the period in which most of the large call purchases were made. Give there was no major news out from the company on Monday morning or over the weekend, the positive trading action may simply be due to optimism about a potential U.S. trade deal with China prior to the looming Dec. 15 tariff deadline.
Benzinga first reported on large bullish Freeport option trades on Nov. 21. Since that time, the stock has gained another 10.4% in less than a month.
The break-even prices of the Jan. 17 $13 calls purchased on Monday suggest nearly 10% of additional upside for Freeport over the next six weeks.
The stock was trading 4.34% higher at $12.14 at the time of publication Monday.
Benzinga’s Take
The majority of the large Freeport option trades on Monday morning were bullish. Yet all nine of the bullish trades took place before 9:15 a.m. before trading flipped decidedly bearish, with nothing but call sales and put buys among the largest trades of the day.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
Related Links:
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How To Read And Trade An Options Alert
Photo by Alfindra Primaldhi via Wikimedia.
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