A Review of Unusual Options Activity & Whales’ Strategies in Freeport-McMoRan Inc.

On September 21st, 2021, among the underlying components of the NYSE, a twitter user used the Unusual Whales Flow tool and reported on unusual options activity in Freeport-McMoRan Inc. (FCX), which opened then at $31.54.

At the time of this report, the open interest on the options chain was 211, and the volume was around 40,000 by then.  Call volume in Freeport-McMoRan Inc. ended that day at 159,274, which was approximately 242% above its 30-day historical call volume mean.

As seen, call and put volume had trended upwards to a high on September 21st, which coincided with the initial whale sighting reports.  Freeport-McMoRan Inc.’s price has continued to trend up, but call and put trading volume has returned to their harmonic means.  

However, open interest had reached a low on September 21st at 1,437,513, and as of September 30th, 2021, has climbed to 1,683,286, which has exceeded the previous high of 1,675,951 on August 20th, 2021.

Additional Unusual Options Activity That Followed

In the following days, there was additional betting on Freeport-McMoRan Inc, with the options flow leaning somewhat bullish.  These orders would be coming just ahead of FCX’s dividend, with reports stating Freeport-McMoRan had declared a dividend of $0.075 per share, payable on November 1st, 2021.

• There were a total of 3,385 contracts traded on the $29 put call option at the bid, dated for October 8th, 2021, representing approximately 338,500 shares.
• Additionally, there were another 1,900 contracts traded on the $33 strike put option at the ask, dated for May 20th, 2021, representing another 190,000 shares.
• Last but not least, there were two separate orders of 1,693 and 1,692 contracts traded on the $29 strike put option at the bid, dated for October 8th, 2021, representing a final set of 338,500 shares.

If all of these orders were traded as a part of a strategy, they would represent a kind of diagonal, or a put credit spread across separate dates, as a calendar spread is, but with different strikes.

These types of spreads, while rarely used, are useful for expecting longer-term sell-offs, or a reduction in the underlying price over many months, while in the shorter-term an expectation of volatility or a raise in price.

If these trades were entered together, however there is no expectation that they were, there would be approximately a 45.2% probability of profit, excluding the assumption of any underlying shares at a better spot price than the aforementioned strikes.  

There would be a credit collected of $2,418,000 at the time of entry, representing the possible profit, with a maximum risk being infinite, beginning and scaling up on the upside beyond the width of the spread between the $29 and $33 strike prices.

Pre-Dividend & Recent Whale Activity

Freeport-McMoRan Inc. (FCX)’s ex-dividend date is October 14th, 2021, with its payout on November 1st, 2021.  As is tradition prior to a company going ex-dividend, unusual options activity has begun trickling in for FCX as whales are intending on taking advantage of strategies surrounding the ex-dividend.

As of October 1st, 2021, Freeport-McMoRan Inc. (FCX) opened at $32.90 and closed at $32.84.  There was additional unusual options activity detected, however this time the sizing of the positions taken and the volumes were reduced, as compared to the previous section.  

While the above trades are not likely exact strategies being employed for ex-dividend price action, it is anticipated that deep, in-the-money call options will begin being purchased on or before October 13th, 2021.

The reason for whale trading prior to dividend dates is to take advantage of certain strategies available to market makers around dividend dates, such as their ability to capture dividend payments by leaving deep in-the-money (ITM) call options unexercised up to the day prior to the ex-dividend date.

Market makers can then use a level of scrupulous arbitrage between each other to trade these deep ITM call options amongst themselves, creating an egregious distortion in volumes of shares and options contracts, all while maintaining the edge of being able to long and short the same contracts.  

They then exercise the contracts for prices equal to or greater than the underlying share price, capturing inclement gains as well as dividends.

After reading, watch the Unusual Whales Flow on and around or DEEP IN-THE-MONEY CALL OPTIONS, purchased repeatedly, in large volumes!

Freeport-McMoRan Inc.’s Recent Flow Outlook

Seen above, the majority of betting of minimum premiums of $30,000 or more of the topmost 250 positions were on the November 19th, 2021 expiration, with $336,918,965 bearish premium traded.  The most active strikes were at the $27 strike price, amounting to $8,135,320 bearish premium.

However, seen above, for betting of premiums of $1,000 or more of the topmost 250 positions, there is a different sentiment, wherein the most active strike was $27 strike price with bullish premium leading, and the most active expiration was the October 15th, 2021, again with bullish premium leading, $9,597,150 compared to bearish premium at $8,855,600.

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