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Unusual Options Activity: Freeport McMoRan (FCX)

Posted: 29 Aug 2019 03:00 AM PDT

Traders bet on further drop in shares by February.

On Wednesday, over 15,000 contracts traded on February 2020 $8 put options on Freeport McMoRan (FCX), one of the world's leading copper giants. With an open interest of around 1,000 contracts prior to the trade, the volume in the option has surged 15-fold.

Shares of the copper mining company currently trade around $8.80, making the $8 strike price on the put option a bet on the share price dropping at least 10 percent from here.

Although best known for copper, Freeport also explores for gold, silver, molybdenum, and even oil and gas around the world. The company has over 119 billion pounds of copper in probable reserves.

Due to declining copper prices, shares are down over 40 percent in the past year, against a flat performance by the S&P 500 index.

Action to take: We like the emerging value in shares, and see copper shortages in the future at current prices, which are too low for even major companies like Freeport to make a meaningful profit. However, the downtrend in prices is likely to continue through February, less than six months away.

So we like this put option trade, which has a total cost of $75 per contract. Investors who make a profit here should look for an opportunity to buy shares under $8 as well to play copper's long-term shortage.

 

Crude Oil Inventory Sees Large Drop Despite Record Production

Posted: 29 Aug 2019 03:00 AM PDT

Decline in reserves five times larger than expectations.

EIA petroleum inventories for the week indicated a sharp drop in inventory of 10 million barrels. With a 2.7 million drop in the prior week and with a consensus for a 2 million barrel decline, the decline was five times larger than expected.

Gasoline saw a 2.1 million barrel decline, against expectations for a 0.4 million barrel decline. Last week, gasoline inventories rose by 0.3 million barrels.

Distillates dropped by 2.1 million barrels, nearly offsetting the inventory gain of 2.6 million barrels last week. This was also in stark contrast to expectations for a 0.9 million barrel rise.

The inventory numbers, set against record production in the United States, were enough to send oil prices higher in trading. Oil prices have traded weak in the past few weeks, a trade war fears have indicated lower potential energy use globally. Seasonally, summer remains a strong period of oil demand in the United States.

Action to take: We caution investors not to read too much into one week's data, and to look at multiple periods of data instead. Oil tends to trade in a range, and is still near the bottom of that range and could head higher. We would be cautious on oil right now should prices press past $65, but that's a long way off. This is unlikely the start of a bigger trend.

 

Insider Activity: Bar Harbor Bankshares (BHB)

Posted: 29 Aug 2019 03:00 AM PDT

Director $116,000 buy at regional bank.

On Tuesday, August 27th, director Scott Toothaker picked up 5,371 shares of Bar Harbor Bankshares (BHB). The buy increased his stake by 22 percent, to just over 29,500 shares. The purchase totaled just over $116,000.

Insiders at the bank have been buyers year-to-date, with many purchases occurring at prices as much as 18 percent higher than where shares currently trade. The last insider sale occurred in 2018, but has been far lower than the total insider buys year-to-date.

Bar Harbor Bankshares operates as a regional bank with over 48 locations in Maine, New Hampshire, and Vermont. It offers traditional banking services such as business and personal loans, lines of credit, and bank accounts.

Action to take: Banking stocks have been out of favor as falling interest rates are seen as a danger to bank profit margins, but the selloff in shares at Bar Harbor has led to a 28 percent drop in the past year and looks oversold. The bank trades at 11 times earnings, pays a 4 percent dividend yield, and trades at a discount to its book value, or the value of all its loans outstanding.

At current prices, shares are a bargain, and are a buy up to $22. As a smaller bank, there are no options plays for speculators.

 

Deutsche Bank Sees Short-Term Rally In JetBlue (JBLU)

Posted: 29 Aug 2019 03:00 AM PDT

Bank sees several near-term catalysts for higher share prices.

On Wednesday, Deutsche Bank released a bullish rating on airline firm JetBlue (JBLU). The bank cited several short-term catalysts on the company, whose shares are down 13 percent in the past six weeks.

The bank specifically cited the company's valuation, which is now less than 7 times earnings expectations for 2020, and well below the company's historic 10-year forward PE average of 10.4 times earnings.

Deutsche has also cited the company's strong balance sheet, market position, and cost controls to deal with the volatility of the airline space. Analysts tracking the airline firm are likewise bullish.

In the past year, shares of the airline have traded between $15 and $20, and were trading near $20 in late July before sliding to under $17 at present, putting shares near the lower end of their trading range.

Action to take: The airline sector has become an attractive place to invest, as companies in the domestic space like JetBlue have focused more on improving operating margins rather than try and grab more market share from competitors by either making money-wasting expansions or cutting fares below operational cost.

Among the airliners, we like JetBlue as a higher-end player with a more niche feel than the larger companies in the space. Shares are attractive here, and worth buying up to $17.00.

Speculators may want to look at January 2020 $20 calls to play a bounce in shares before the end of the year.

 
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