After a brief respite, metal and mining stocks are ready for another leg higher. They’ve been a hot commodity this year and the good times should continue to roll forth.
Count Freeport-McMoRan Inc (FCX) among the list of good lookers. Sure, it has dithered for the past month, but the rest was well-deserved. The beaten-down copper stock was in need of some consolidation following its epic 225% ascent off its lows.
Since skirting the $2 zone, FCX has been caught up in the commodity comeback. And despite the aforementioned dithering, Freeport McMoRan is boasting a mighty good looking setup here.
The ongoing retracement is taking on the form of a bull flag. As the name suggests, it’s a banner flown by buyers after a successful rally. Slight profit taking has taken FCX stock down a notch or two in an otherwise orderly fashion. But, fear not, dear bulls. Thus far, the selling spell has been tame and is providing a low-risk entry for traders looking to get in on the action.
Rather than piling into FCX immediately in anticipation of its next advance, you could wait for a bit of confirmation in the form of a breakout over the descending trendline shown below. The $10.20 level is as good as any for a trigger.
FCX Call Spreads Offer BIG Returns
If you are a stock trader, consider buying shares outright. If the $10 price tag isn’t cheap enough, or if you simply want to tap into the leverage beckoning in the options market, try the June $10/$12 call spread on for size. The bull call spread consists of buying to open the June $10 call while selling to open the June $12 call for 69 cents.
The risk is limited to the initial 69 cents and will be lost if FCX stock sits below $10 at expiration. The max reward is limited to the distance between strikes minus the net debit, or $1.31, and will be captured if Freeport McMoRan can climb above $12 by expiration. By risking 69 cents to score $1.31 the spread offers an impressive 190% return.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
