Freeport-McMoRan Copper & Gold Inc (FCX) – Sold Naked Put

Barron’s highlighted FCX in the June 2nd issue in an article about social network stock pickers. From Marketocracy.com, T.J. White has done well with FCX.  I charted it on Monday after close and thought he had a good idea going.  FCX has been trading below its 10 and 20 day moving averages, but is a few points above its 50 day moving average which happens to coincide with the upward trend line of higher lows that is offering support again.

I didn’t want to risk too much and with the premiums being rich enough I was able to enter my limit for more than $10 out of the money.  This was after hours when I charted it, so I couldn’t tell for sure if FCX had finished its fall and would open into a rally today.  I set my limit .05 above the ask. This morning, before market open I checked to see the pre-market prices of FCX and saw a wide range for the bid ask.  I kept checking every 30 minutes to see if it narrowed. Finally at 9:29 I saw that it was set to open down most likely.  I upped my limit from 4.10 to 4.25 and within the first minute of trading, when FCX was passing through $114.50 on its way to $113.58 for a morning low, my order hit and I sold one FCX July 105 naked put (FCXSA) and received $414.25 after commissions.

I didn’t time this one exactly right, but sold at the high trade of the day.  What you can’t see now is that the bid/ask made it up to around 4.40/4.45 before FCX changed directions and moved positive, up $3.00+ from it’s morning low.  This price action underscores the importance of watching the prices intraday on options you trade versus just the closing prices including the high and low trades.  I could’ve made another $20 if I had my limit order better priced.  I can’t be upset with the move though.  I’m already up $50 on it and it’s only a little after noon as I write this. Once again, using a limit order looks like it’s going to pay off for me by squeezing out a decent amount more than I would’ve gotten had I just sold at market prices.