Option Traders Turn On FCX Following Gold And Silver Rout

FCX Unusual Option Activity

Unusually large bearish options activity popped up on Freeport-McMoRan Inc (NYSE: FCX) following gold and silver losing 3.53% and 6.92%, respectively. The share price of FCX only finished 0.61% lower but calls into question the near-term potential of the mining stock after its large run. At least for options traders, the forecast is for a pull-back in the coming week.

FCX Option Activity

The volume wasn’t all that sizeable on FCX, but it was highly directional. The put option volume was in line with the 5-day average and 61% of the volume was filled at the ask price. That shows a lot of put option buying volume getting filled at market. That reflects a bearish outlook. Here is a breakdown of the significant activity:

  • 10,968 15 JAN 21 $29 puts BOT in three prints @ $0.22 to $0.32 against open interest of 955

The notional value of the trade is only a little over $80,000, but it reflects the expectation for a near-term retracement in the underlying over the next week. The $29 strike price provides a breakeven price of $28.78 to $28.68. Given the large run in the stock over the past couple of weeks and the weakness in precious metals, next week could be a turning point for the stock or just a retracement.

FCX Technicals

As you look at the option pricing for next week’s expiration, the probability of touching $29 is around 48%. That makes intuitive sense since the breakeven level is near the 38.2% retracement of the recent rally. A 61.8% Fibonacci retracement is near $27, which would be a nice payday for a $29 strike with a weekly expiration. That would mean the option would have $2 of value by the end of next week on less than a $0.32 cost.

Conclusion

Metals and mining companies have been quite bullish for a while and FCX has seen a lot of bullish unusual options activity in recent weeks. While FCX mines other metals, the movement in gold and silver certainly calls into question the extended nature of FCX and other industrial mining companies. While the trade isn’t indicating a collapse in FCX, it certainly is looking for a decent size pull-back.

Disclaimer: Neither TheoTrade or any of its officers, directors, employees, other personnel, representatives, agents or independent contractors is, in such capacities, a licensed financial adviser, ...

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