We were whipsawed out of the Freeport-McMoran (FCX, $32.31, up $3.90) trade from last Friday when the stock dropped $4 yesterday. Naturally, I didn’t expect a 10% drop in the stock price when we bought the March 35 calls (FCXCG, $1.50, up $0.97) for under a $1.
The calls traded as high as $1.20+ on Friday and I felt both good and nervous about the position. One of the main reasons I got into the trade was based on the price of copper moving higher. There was resistance at $1.60/ pound but that resistance level looked as though it was going to be taken out.
One of the best ways to play copper is through Freeport and the stock is making back all of its lost gains from yesterday on news that China will boost government spending, reviving its economy and lifting metal demand. Copper is jumping 6.85 cents to $1.673 a pound this morning and reached a high of $1.6845.
China demand and higher copper prices mean a higher stock price for Freeport. Although we were whipsawed out of the trade, some of you left the position open – evident of the amount of emails I have been getting. By the way, keep the emails coming but realize I can’t answer them all. If I get a bunch on the same topic though, I will usually write a response here in the blog for everyone to read.
I usually follow my trading plan and that means I cut losses at 50% and try to target 100% for a return. I hate having a losing trade and you can tell from my track record that I don’t have that many. However, this one bothers me because my research was right on. But I also realize things like this happen.
If you left the trade open then you are looking at some fantastic profits. Freeport has serious resistance at $33 and that is why you are seeing the stock bounce up to $32.50-$32.60 and then fall back down. If the stock breaks $33 then it has a shot at $35. However, these are the tough choices you have to make but don’t try to squeeze more out of the trade if it doesn’t look like the stock is going to break $33 by the end of the day.
Also, put things in perspective. If you bought 10 call options last Friday for $1,000, right now, you are looking at a $500 profit. What if you would have bought 10 contracts yesterday for 50 cents? Having a 50% profit in three days should tell you something. The smart money is being made so don’t give back your profits.
Rick Rouse
Rick@OptionsMentoring.com
