Steel names this morning were in high demand after a pair of better than expected earnings reports were released from AK Steel (AKS) and Schnitzer Steel Industries (SCHN). All metal names gapped up considerably on the news including a name we are watching closely for upside potential, Freeport McMoran (FCX). FCX also reported earnings this morning posting a profit but missing it’s Q3 estimates. The reaction in the sector was buy everything on the open and roll call positions forward in the options market. These names have already pulled back from the morning vol spike so they are already offering a dip buy opportunity.
FCX has been in a massive consolidation pattern with a range between $14 and $10. Now, despite these steel/copper names bouncing considerably from lows seen earlier this year it is possible we see another leg higher by year end. Call flow here on this FCX came in at the highs of the session but we want to monitor the action on these options on pullbacks in the stocks and search for more call activity.
The ‘ref’ column above shows when the call buyers purchased their contracts. You can see we’re already getting a nice discount on these contracts. I went ahead and bought a very small position to feel it out and see what kind of action the metals show within the next few days. Over $11 and this FCX can move aggressively.
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