Bull or Bust

a bull's view

FREEPORT-MCMORAN (FCX) EARNINGS

earningsFCX TUESDAY

Not sure if you’ve noticed, but it’s a major earnings week! How exciting! Freeport-McMoRan (FCX) [stock_quote symbol=fcx] is one I’ll be watching before the market opens Tuesday morning. Analysts are mixed regarding what to expect, and I am just as unsure. I thought about opening a straddle position using the AUG 12 strike, but ultimately decided against it. Instead, I bought back my current FCX SEPT 11 PUT and my JCP AUG 8.5 PUT both of which were profitable. I moved most of my portfolio into cash leaving only Denbury Resources [stock_quote symbol=dnr] which is kicking my tail right now.

SO WHAT WILL FCX REPORT?

Freeport-McMoRan will be reporting its earnings for the second quarter tomorrow before the opening bell. According to NASDAQ and based on eleven (11) analysts forecasts, the overall consensus is that the company will produce a loss of $0.01 per share. This shows a massive decline from the gain of $0.14 per share realized in the same quarter last year, but strong growth from the loss of $0.16 per share realized last quarter. If they can pull off a slight loss of $0.01 per share or even better actually turn a profit per share the results will be a stock price rocketing past $13.00 per share. I personally do not want this to happen.

THE FCX TRADE

What do I want to happen? Well, I do believe FCX is going higher. That I will admit, but what I really want is for the market to snap react (as it often does) to some irrelevant remark or tidbit of information within the earnings figures and drop the stock price below $11.00 per share. I want this to happen just long enough to SELL AUG & SEPT CASH SECURED-PUTS against the stock. I might even buy some shares with a covered stock transaction.

AUGUST EXPIRATIONS
(3-5% 24 Days)

I’m looking at the $10.00 strike for both August and September. I would prefer August (of course) just for the faster ROI. Currently, the AUG 10 PUT is selling for 1.5% which is not too bad given the duration. However, if we see a massive dip right before the open then this could turn into 3-5% pretty quick. I would set multiple limit-orders just in case.

SEPTEMBER EXPIRATIONS
(5-10% 52 Days)

Again, looking at the $10.00 strike for September it is currently trading at 3.3% and could easily (with a quick dip) increase to the 5-10% range. For 52 days I would need to be in the 8-10% range to really be ok with it. The funny thing about FCX is the fact you may think it’s going to be 52 days, but if it dips hard it could recover in 24-48 hours. I’ve watched it happen many times.

COVERED STOCK (PROTECTED PUT)

If you’ve read my article on Protected Put (Married Put) transactions then you know what I’m about to say. If you haven’t I suggest you go read it now and shame on you. If FCX dips hard I would not only sell puts against it at the $10.00 (maybe $11.00) strike(s), but I would be tempted to buy 500 shares of stock and sell the SEPT 13 PUT as protection (insurance). Really, I would sell whichever strike was above the stock purchase price.

With a covered stock purchase you get both the shares of stock and the protection (buying an equivalent PUT option) all with a single transaction, single commission and your stock is protected for the duration you choose (by the PUT). It also lowers your buying power less than simply buying the stock outright. So really, I would sell puts and buy covered stock if FCX tanks below $11.00 per share. Here’s to hoping!

 

 

Stock and Option Trading