Make Surging Freeport-McMoRan Inc (FCX) Stock Pay You

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Freeport-McMoRan Inc (NYSE:FCX) shares are exploding higher following a not-so-dynamite earnings announcement Tuesday. Nonetheless, the global mining company is up 12% in early morning trading on heavy volume. The jump is carrying FCX stock to a new five-month high, clearing multiple resistance levels in the process.

Make Surging Freeport-McMoRan Inc (FCX) Stock Pay You

It’s not just FCX that’s seeing green today. The entire mining space is getting in on the action. For evidence, look no further than the SPDR S&P Metals and Mining (ETF) (NYSEARCA:XME), which is popping 3.5%.

Curious enough, FCX actually missed earnings estimates, reporting 17 cents per share versus the expected 20 cents. It did beat revenue expectations, however, scoring $3.71 billion versus the expected $3.67 billion.

So if FCX didn’t exactly blow the doors off of earnings expectations, then why are buyers salivating over the stock today?

The answer lies in the commodities market. Copper prices are ripping. The relationship between FCX and copper is a strong one. In fact, I suspect many traders use FCX as a proxy for copper, buying Freeport-McMoran when they’re bullish on copper and selling it when they’re bearish.

The accompanying chart illustrates the recent correlation between the two. As shown in the lower panel, the 20-day correlation sits very close to 1.0 which means both assets have been moving in lock-step.

FCX-JJC chart
Click to Enlarge
Source: OptionsAnalytix

With today’s rip, Freeport-McMoRan shares are now firmly in an uptrend on the short-term and intermediate-term time frames. The upside momentum is reminiscent of the post-election rally that lifted metal stocks across the board last November.

FCX stock chart view 1
Click to Enlarge
Source: OptionsAnalytix

If buyers continue to press their advantage, the stock could revisit its highs near $17.

Turn Copper into Cash

While Freeport-McMoRan shares could experience some backing-and-filling in the days ahead as it digests today’s gains, any and all dips should be viewed as buying opportunities. And we can use the options market to get paid even if the stock drifts for awhile.

The low price of FCX stock makes it a prime candidate for naked option selling. The margin requirement will be minimal allowing us to generate a solid return on investment.

Sell the Aug $14 put for 38 cents. Consider this a bet that the stock will sit above $14 at Aug expiration. If it does, you will capture the max reward of 38 cents.

The initial cost should be around $240, so we’re looking at a potential 16% return. By selling the put, you are obligating yourself to buy 100 shares of stock at an effective purchase price of $13.62 if assigned at expiration.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


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