Following a feature on a short-term strangle trade in Freeport-McMoRan, today's column looks at a longer-term set-up in the same copper mining company. Specifically, let's consider a long call butterfly spread play in Freeport-McMoRan stock.
As copper forms a base and tests prior highs, some unusual May call activity showed up in Freeport-McMoran stock. This follows the thesis of metals having a good year as infrastructure builds and the repatriation of industrial production into the U.S. heats up. Yet an uncertain backdrop of the economy looms.
As my suspicion contends that this year is going to be largely sideways as pricing gets recalibrated, I am choosing to use the "leap," an option position that goes out one year or more into the future.
Freeport-McMoRan Stock Today: Trade Structure
A long call butterfly is the combination of a long call spread, and a short call spread that share the same short strike and the same expiration date. The term leap simply means that we position the option well into the future (using a bullish position that gives us time to wait out the sideways churn ahead).
The long call butterfly (positioned for upside in the details below): The beauty of a leap butterfly is that time decay becomes largely irrelevant, so we can wait out the noisy bits in the market as we recover.
- Buy to open 1 FCX March 20, 2026-expiring call with a 35 strike price
- Sell to open 2 FCX March 20, 2026 55 calls
- Buy to open 1 FCX March 20, 2026 60 call
The long call butterfly for Freeport McMoRan stock holds a current debit of $7.47, or $747 per set of contracts, based on recent trading. This represents the total risk incurred in the trade. The breakeven price of the stock at expiration on this trade stands at 42.47.
On Thursday: A Short Strangle Trade On Freeport-McMoRan Stock
One Tweak With The Butterfly
This is a unique positioning with the call butterfly as the keen eye might notice that the distance between strikes in the long call spread is $20 wide. But the distance between strikes in the short call spread is only $5 wide. This ultimately means that if the Freeport-McMoRan stock moves up dramatically, we still capture a very tidy profit.
The total highest potential profit is $20 (the distance between 35 and 55) less the cost of the debit incurred by buying the call butterfly. So $20 – $7.47 = $12.53, or $1,253, less commissions.
It is extremely rare to collect all this premium in this kind of butterfly. Instead, I like to consider achieving a 40%-90% profit of the longer-term investment. These leaps also have favorable tax implications.
Identifying Key Chart Levels For Freeport-McMoRan
Let's now identify key chart levels for Freeport-McMoRan stock.
The relative resistance zone sits right around 55, but trading could be choppy for many months with market uncertainty. Set an alert for prices near this middle strike so that you are very aware of the motion into the middle strike, where the maximum profit will engage into expiration. You will also notice that price action is less sensitive to fluctuations in Freeport-McMoRan stock the further we are from expiration. Support sits near our 35 strike price.
The strategy result provides several ways to exit, but I will discuss only two. One, sell the call butterfly when the profit goal moves into your target parameters — particularly once the middle strike is tested near the expiration time. I often look for a 40%-90% return for these types of call butterflies with strikes deep in the money. Two, sell the call butterfly when your loss threshold is breached. Customarily, this is 50% for me.
Anne-Marie Baiynd is a 25-year veteran trader of stocks, options and futures and is the author of "The Trading Book: A Complete Solution to Mastering Technical Systems and Trading Psychology." You can find her on X at @AnneMarieTrades, Sirius Business Radio, Investors Business Daily, the Benzinga Pro platform as well as Topstep on YouTube.
