Freeport-McMoRan rallied with the price of copper today, yielding large returns on bullish option positions opened just a few days ago.
Last Thursday, Investitute’s proprietary programs found that 24,400 Weekly $15 calls expiring on Dec. 22 were purchased for $0.25 to $0.30 with shares at $14.59. These were clearly new positions, as open interest in the strike was only 1,150 contracts before the trades occurred.
Those calls rose to $0.85 this afternoon, more than 3 times their original purchase price. The stock was up 7.9 percent in the same time frame, illustrating how quickly options can far outperform their underlying shares.
Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.
FCX jumped 4.59 percent to $15.71 today. Morgan Stanley upgraded the mining and energy company to “equal weight” from “underweight” and raised its price target to $14 to $10 after the market closed yesterday.