After surging higher in January, Freeport-McMoRan Copper & Gold (NYSE:FCX) has thus far spent February in consolidation mode.� As it digests the gains from last month, FCX looks to be setting up a clean base that can serve as a launching pad for higher prices.
Resistance at $47 is acting as a lid preventing higher prices for the time being.� Once this lid lifts, however, a continuation in Freeport�s uptrend should be in the offing.
Upon a successful breakout above $47, traders looking for bullish exposure in the basic material space might consider selling a March put spread on FCX. (This strategy is also known as a bull-put spread, or a put credit spread.)
Selling out-of-the-money put spreads offers a higher-probability alternative to buying call options by providing a much larger profit zone. While a long call only profits if FCX rises in value, the put spread profits even if FCX trades sideways or drops a little, which moves the odds more squarely in your favor.
To play those odds, you can sell the FCX March 44-39 put spread for a $1-or-more credit.� To enter the position, �sell to open� the FCX March 44 Put and, at the same time, �buy to open� the FCX March 39 Put.� Prices that work right now are collecting $1.70 for the $44 puts and spending 50 cents on the $39 puts.
The maximum reward is limited to the initial $100 ($1 cents x 100) you receive, and this will be captured if FCX remains above $44 by March options expiration.
Source:� MachTrader
The maximum risk can be calculated by taking the distance between the strike prices minus the net credit.� If this March $5 vertical spread (vertical means both options expire in the same month � in this case, March) is sold for $1, the max risk comes out to $4 and will be incurred if FCX resides below $39 at March expiration.
At the time of this writing Tyler Craig had no position! on FCX.
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