It’s no secret that the gears of the government move slowly …
Especially when Congress takes a weeks-long summer “vacation,” like they do in August.
Unfortunately, it’s looking like it’ll be quite a bit longer before we see the outcome of the latest infrastructure bill come to fruition …
But there’s someone out there who may actually be benefiting from this delay …
One Big Money trader made a hefty bet on a precious metal mining company …
And the continued delay might actually work to their advantage!
Now, before we dive into the specifics of this trade, let me explain a bit how this play could be related to the $1T infrastructure bill currently waiting for Congress to … well, do something.
One of the big focuses of this bill is Green Energy.
And while there’s some “obvious” names who could stand to benefit from the clean energy provisions (electric vehicle companies, car companies getting into electric vehicles, electric vehicle charging companies … you get the picture) if you dig a little deeper, you’ll find even more trading possibilities than you might find on the surface.
One of the industries that could stand to really benefit from the adoption of green energy technology is copper.
Demand for copper could skyrocket as ‘green’ measures are built and put into place – for example, the electrification of government vehicles alone could be a huge boon for the metal, with EV’s using up to ten times the amount of copper as standard combustion vehicles.
And of course, one of the leading names in copper mining is …
Freeport-McMoRan (Ticker: FCX).
Though FCX has been taking it on the chin over the last few days, falling 5.8% during Tuesday’s trading session alone, the fact of the matter is the copper miner has overall had a blockbuster year:
Chart courtesy of StockCharts
But since dropping from a 10-year high of $46 in May, the shares have struggled to make up significant ground, with several recent rallies stalling out near the $39 mark.
It seems like the deep-pocket trader mentioned above is counting on this chokepoint to hold … at least for the next several weeks.
A sizable trade crossed the tape in FCX’s pits yesterday afternoon, and the neutral-to-bullish stance likely bodes well for the copper miner.
This trader opened up a long calendar spread, also known as a “time spread,” which involved the trader selling 10,000 contracts of the September 39-strike calls, while simultaneously purchasing 10,000 contracts of the October 39-strike calls.
What information can we glean from this?
Well, first of all, it seems as though this trader is assuming FCX will remain below the 39-strike through September expiration.
By selling the September-dated calls for $0.50, they was able to reduce the cost of their October calls from $1.05 to $0.55. That means their total outlay was reduced from $1,050,000 to $550,000 — a bargain, right?
It also means this trader will hit profitability on the October calls at just $39.55, rather than $40.05.
Likely, this trader believes that the October calls are cheap relative to the September calls, so they’re taking advantage of this by using them to subsidize their contracts purchased.
And in spite of the hefty investment in the October calls, this trader may not necessarily believe FCX is poised to pop above $39.
If the September calls expire out of the money, the trader can either hold on to their October calls and hope to profit from a FCX rally, or if they’re more neutral in their sentiment, they may choose to sell another call against their long position.
Or finally, should expectations of movement increase (implied volatility, or IV), they may simply be able to sell their October calls at a profit, especially given their initial October purchase was subsidized by the September sale.
Anyway, there’s at least one person out there who is likely hoping Congress continues to work at a snail’s pace.
Judging solely on the likelihood of that being the case … I’d say the odds are in their favor.
Your Only Option,