|Stockpickr: Who Owns Freeport?|
CHICAGO ( TheStreet) -- Options action in Freeport-McMoRan Copper & Gold ( FCX) during midday trading Monday suggests that at least one investor expects the stock to experience limited upside throughout the next two months. FCX, which declined Friday on weakeness in copper futures, did not announce any news today, and the stock closed up $1.29, or 1.6%, to $79.80. The company might announce earnings sometime around April 22. It looks like at least one investor traded a hefty number of upside calls providing some cushion for a rally, but maintained modest bearishness in the company. Around 12:30 p.m. EST, an investor sold the May 90-100 call spread 9,000 times, collecting 75 cents per spread. The investor likely bought the out-of-the-money May 100 calls for 22 cents per contract and simultaneously sold the OTM May 90 calls for 97 cents per contract. The May 100 calls are home to current open interest of 14,000 contracts, and the May 90 calls are home to current open interest of 20,000 contracts.
The lower-strike calls have dropped nine cents so far today, while the higher-strike calls are currently trading down five cents. Investors who sold these call spreads will make a maximum profit of the premium collected, or 75 cents per spread, if FCX shares close lower than $90.97. However, if the stock soars higher than $100, this strategy caps any losses at $9.25 per spread. Implied volatility of the May 90-strike calls and the May 100-strike calls is roughly 35% compared to a 30-day historical volatility of 31%. Call spread selling action such as this is not the only reason that investors might choose to sell FCX shares, but keep in mind that at least one investor expects FCX shares to peak at around $90 during the next couple months, which represents a 15% rally from the stock's current level. -- Written by Jud Pyle in Chicago