Two weeks ago, I talked about the coming shortage of copper and 2 companies which you might consider to buy to ride the uptrend. Indeed the copper's price is going up and one company, VALE, is also going up along with. However, the other stock, Freeport-McMoRan's (NYSE: FCX), has surprised the market by announcing to acquire McMoRan Exploration and Plains Exploration with a $9 Billion price tag. FCX is the world largest producer of copper. It owns a 90% stake in the gigantic Grasberg mining complex in Indonesia. Grasberg is the world's largest copper and gold mine. However, apparently FCX also wants to re-enter the energy sector. The markets did not like what FCX was doing and punished FCX by knocking about 20% off FCX's share price on the day FCX announced the acquisition.
I have got some positions with FCX for a while. With a 20% hair cut, one may consider that I have probably been shaken out of the FCX position. Nope! While my paper gain has indeed come down quite a bit, I'm still significantly in the money with a 46% paper profit. That's the beauty of using the so-called naked put option technique to long a stock. I don't need to be exactly right about the stock price. What I'm doing with this position (as shown below) is that I will be making money as long as FCX does not drop below $23. At the moment, FCX is trading hands at about $31. I still think FCX is a great company with very valuable assets. It may not be performing well in the near term, but I'm quite confident about its long term values. If it further declines significantly below $30, I will consider to add more of it to my portfolio.
|
3.05 |
-0.07 |
-2.24% |
$105.00 |
-15 |
$5.75 |
$4,030.49 |
+46.62% |
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