Bought FCX Put Options

I own 200 shares of Freeport-McMoRan Copper & Gold Inc (FCX) with a pre-option cost of $72.50 each.  I started this position by selling naked puts and have sold covered calls a couple of times since then.  I waited since the last covered call options expired out of the money and didn’t bother selling new ones yet since I was hoping for a little more of a rally in FCX before I sold new covered calls.  That was a big mistake. 

This morning FCX announced that they are suspending their dividend and cutting production.  It is down 18% too $17.73 so far and still falling.  While FCX was trading at $17.97, I bought to open three FCX December 15 puts (FPAXC) for $0.97 each and paid $303.24 with commissions.  Like all of my positions, I should’ve hedged earlier, but I’m glad I finally wised up.  As I mentioned above, I own 200 shares and yet I bought three puts.  My goal is to make more with my puts going down than I lose from my shares of the stock.  I bought out of the money puts to lower my costs.  Buying at the money or even in the money might have been smarter because I’d have increased my chance for a profit on the puts, but I’m still easing myself into learning to hedge.  I bought the near term expiration because I think most of the losses will come soon after this announcement and I didn’t want to pay for extra time on the options I doubt I’ll need for my plan.  The good part is I’m not staying as stubborn as I was and will try to start hedging sooner on other positions.

I also received at $35 dividend from my CMI shares.  Not much, but will buy one more Christmas present.  Not that I’m withdrawing any money from this account in the next five years.