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

FCX continues to fall and I think 60 should offer support based on the chart I drew below.  I placed a limit order to sell a new naked put and/or naked call depending which direction it swung.  I’m already long 100 shares with a covered call at the 80 strike and want to bring in some more premiums to help with the paper losses I’m sitting on.

While FCX was trading at $66.70 the limit order for downside movement I placed earlier in the day hit and I sold one FCX October 60 naked put for $2.60 and received $249.25 after commissions.  This was at 3:45 and I didn’t get back into my account in time to sell the other side of my strangle order before the market closed for the day.  That might be a blessing in disguise if FCX can open to the upside in the morning.  Either way, I might change my remaining order to two new calls at the 80 strike.  I’ll go into more details why if/when the order hits.

I picked October 60 for a strike on FCX on this naked put because of the support I’m expecting from the three year weekly chart’s view.  The past few months’ price action has been ugly, but FCX is trading at the bottom of that trading channel, nearer to the lower lows than the lower highs.  If the support line around $60-61 holds, I think that could be a good spot for the trend line pointing down to break.  I like the October put on this because it only has three and a half weeks remaining and the time value should deteriorate quickly, assuming the slide slows.  If FCX rallies over the next few weeks, I’ll have to consider closing this put early for a quick, small gain.  If the slide goes deeper than 60, I’ll probably take the new option assignment in October to reduce my average cost and because I expect the downside to be limited from there.  The PEG for FCX is only 0.53 and it has a forward p/e ratio of 5.44.  Both of those numbers could be meaningless if earnings dive, but it gives a nice margin for error.  This is another one of my plays that hinges on China coming back to life in a few months and providing demand again.