Without any notable news from
Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX
, shares of the company have gained more than 2% so far on the day.
Puts due to expire in January 2011 were active during the morning
session thanks to an investor who appears to have expressed
bearishness on FCX.
Shares of the copper and gold name were trading up $1.43 to
$68.09 as of 11:55 a.m. ET. FCX did not announce any news on
Thursday, but HSBC downgraded the company to "neutral" on Tuesday.
The stock is trading roughly 17% higher than its 52-week closing
low of $58.18. Options action on the tape suggests at least one
investor expects the stock to drop into the red during the next
A large block totaling 10,000 January 2011 57.5 puts changed
hands around 11:30 a.m. ET on Thursday. The options crossed for
$3.90 per contract, which was the ask price at the time of the
trade. Current open interest in this line is 534 contracts. This
options action suggests the investor opened a big block of puts on
a bet that FCX shares will drop at least 21% prior to January 2011
If FCX shares are still trading higher than the strike price at
expiration, this put buyer will lose a maximum of the premium paid
per contract. Total maximum loss on this bearish trade equals $3.9
million. If the stock is trading between the strike price and the
breakeven level of $53.60, the investor takes back some of the
Maximum gain on this trade occurs if FCX shares are trading
below the breakeven level. The investor will make a maximum of
$56.30 per contract in the unlikely event that the stock is trading
at zero at expiration.
In order for the stock to drop at least 21%, the investor is not
only betting on downside but also calling for volatility to
increase during the near term. The January 2011 57.5 puts are
currently trading with an implied volatility of 50% compared to the
stock's 30-day historical volatility of 40%.