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 $1,003,750 that FCX will Stay Bearish For the Next 7 Months
On Thursday, June 23, 2022, a pro trader seems to have bought 2,750 of the January 20, 2023, $27 put options on FCX for $3.65 per contract. His outlay was $1,003,750.
The trade’s breakeven point is at $23.35, meaning that FCX needs to decline to $23.35 for the put option trade to break even. This is a nearly 21% downside from the stock’s previous close of $29.57. And then for every $1 the stock falls below $23.35, our “smart money” trader will make $275,000!
On analyzing the chart of FCX, the stock seems to have broken down from a head and shoulders pattern (marked as blue color lines). It is also currently trading below a support-turned-resistance area (marked as a pink color dotted line). All this makes it likely our pro trader is bearish on FCX.
This lends credence to our conclusion that the pro bought these put options, as opposed to selling them.
If you agree and would like to mimic this trade, here’s how:
Buy to open the January 20, 2023, $27 put options on FCX for $3.65 per contract or better.
As always, depending on your risk appetite, do remember to set a stop-loss for the options trade to avoid significant losses.
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