Freeport-McMoRan is showing a strong bullish trend and is above the rising 21-, 50- and 200-day moving averages.
Income investors might consider an options trading strategy known as a covered call.
A covered call strategy is one way to slightly reduce the risk on a long stock position while also generating some premium. The catch is that upside is limited above the covered call strike.
Let's look at how a covered call trade on Freeport-McMoRan might take shape.
Buying 100 shares of FCX stock would cost around $5,363.
A July 19, 55-strike call option was trading around $2.40 late Tuesday, generating $240 in premium per contract.
Options Trading Strategy Can Return 7.36%
Selling the call option generates an income of 4.68% in just under two months, equaling around 32.88% annualized.
If Freeport-McMoRan closes above 55 on the expiration date, the shares will be called away at 55. That leaves the trader with a total profit of $377 (the gain on the shares plus the $240 option premium received).
That equates to a 7.36% return, which is 51.65% on an annualized basis.
Of course, the risk with the trade is that FCX stock might drop, which could wipe out any gains made from selling the call.
Covered calls can be an effective strategy for generating income, managing downside risk and reducing the effective purchase price of a stock.
Options Trading: Freeport A Play On Metals
Freeport-McMoRan works in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver. It also involved in the smelting and refining of copper concentrates.
According to the IBD Stock Checkup, Freeport-McMoRan stock is ranked No. 5 in its industry group. It has a Composite Rating of 90, an EPS Rating of 51 and a Relative Strength Rating of 93.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
