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Mine for Stronger Risk-Adjusted Profits in Freeport-McMoRan

The price chart, sentiment and a well-crafted options combination all support gaining FCX stock exposure today

FCX stock - Mine for Stronger Risk-Adjusted Profits in Freeport-McMoRan

Source: Nick Bastian via Flickr (Modified)

Off the chart, there remains plenty of reasons, old and new, to be wary of Freeport-McMoRan (NYSE:FCX). But for contrarian-minded bulls, there are now even more technical provisions supporting FCX stock and backing yet another modified fence strategy. Let me explain.

It hasn’t been a pretty 2018 for Dr. Copper and miner Freeport-McMoRan. The bear narrative remains in full swing with teeth sharpened of late on continued trade war worries, concerns of a weak-kneed Chinese economy, the strong U.S. greenback and Freeport’s leveraged play on the price of copper.

Given Wall Street’s unyielding pessimism for the metal and FCX stock, some may even say Freeport-McMoRan is probably responsible for the Mueller investigation too.

… Okay, maybe not. Nevertheless, with so much bad news baked into FCX stock, bad is looking good once more for bullish contrarians on Freeport’s price chart.

FCX Stock Weekly Chart

FCX Stock Weekly Chart
Source: Charts by TradingView

The latest bearish swing in FCX stock has taken shares into an interesting area of technical support amid all the bearish mudslinging. As much, the combination offers a nice opportunity for bullish contrarians.

It’s true, 2018 has been harassed by a jagged series of mostly lower highs and lows reminiscent of a downtrend. That’s bearish of course. But looking at the extended weekly chart of Freeport, it’s also accurate to say shares are in a low-risk area backed by a few key technical supports.

First, this year’s pressured price action has put FCX stock into a testing position of the 38% retracement level within a larger uptrend which began back in early 2016. Investors looking to wager against FCX’s current bearish persona also have a nearby challenge of the prior downtrend channel line and lateral price congestion formed during 2017’s second half offering technical support. Lastly, stochastics is also indicating shares are oversold.

Looking ahead and if Freeport is able to hold the $13 a share area, a resumption of the larger uptrend bodes well for bullish investors. This market strategist anticipates fresh intermediate highs in 2019.

FCX Stock Bullish Modified Fence Strategy

For like-minded investors looking to get long exposure to FCX stock with vastly reduced and limited risk which also respects the discussed technical picture, a bullish modified fence strategy looks attractive. If it sounds familiar, it should.

Back in late April following an earnings-driven downswing that left shares of Freeport near $16, I outlined a no-cost modified fence combination. Ultimately the August-dated position expired nearly worthless with nothing really lost if held for the life of the contract.

Reviewing Freeport’s options market today and FCX stock at $13.57, one favored combination is buying the Nov $15/$17 call spread and selling the Nov $13/$12 put spread for even money or no-cost.

To review, the primary objective for this strategy is for the out-of-the-money call spread to move in-the-money. As the vertical has been financed in full by the sold put spread this trader can realize up to $2 in profit at expiration if FCX stock has reaffirmed its uptrend and shares are above $17.

Risk with the modified fence is limited to $1 below $12. Those losses begin to accrue if shares of Freeport fail to hold the discussed and key $13 price level. However, for deep-value-type investors inclined to buy at potentially steeper discounts to today’s prices, this strategy can further help by keeping you in the game financially and mentally versus buying FCX stock today.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

Article printed from InvestorPlace Media, https://investorplace.com/2018/09/mine-for-stronger-risk-adjusted-profits-in-freeport-mcmoran/.

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