One of the most interesting “smart money” trades we came across yesterday was with Freeport-McMoRan Inc. (NYSE: FCX).
If you’re new here, a “smart money” trade is a relatively large volume option trade most likely made by a pro trader. The idea is to analyze unusual options activity, identify an interesting “smart money” trade, and then make our best guess as to:
- Which direction the trader thinks the stock is headed
- How much they think it will rise (or fall), and
- In what time frame this will all happen.
If we like what we see after putting all these pieces together, we can mimic the “smart money” trade (on a smaller scale), and potentially ride alongside our pro trader to profits. With all this in mind…
A Pro Trader Just Bet $975,000 that FCX Will Continue to Climb in the Next 5 Weeks
On Tuesday, October 12, 2021, a pro trader seems to have bought 5,000 of the November 19, 2021, $35 call options on FCX for $1.95 per share. His outlay was $975,000.
FCX – Option Trade
The trade’s breakeven point is at $36.95, meaning that FCX needs to rise to $36.95 for the call option trade to break even. This is a nearly 7% return from the stock’s previous close of $34.61. And then for every $1 the stock rises above $36.95, our “smart money” trader will make $500,000!
On analyzing the daily chart of FCX, the stock seems to have broken out of a flag pattern (marked as blue color lines). This breakout level would now act as a strong support area. The stock is also trading above a strong support area (marked as a purple color dotted line), which would now act as an additional level of support for the stock. FCX is also above its 50-day and 200-day moving averages. All this makes it likely our pro trader is bullish on FCX.
FCX – Daily Chart
This lends credence to our conclusion that the pro bought these call options, as opposed to selling them.
If you agree and would like to mimic this trade, here’s how:
Buy to open the November 19, 2021, $35 call options on FCX for $1.95 or better.
As always, depending on your risk appetite, do remember to set a stop-loss for the options trade to avoid significant losses.
Happy Trading!
— Trades of The Day Research Team
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