A very long term copper play


Electric cars & not only will boost the use of copper in the next years and increase the value of copper. The bigger copper miner worldwide is Freeport McMoRan(FCX) and can be a main beneficiary of this trend. With a depressed price of 10.37 recently due to recent disappointing financial performance may offer a unique entry point for long term investors , especially if we take into account the projected increased production of copper from its Indonesia mines starting 2021. Although the recent dismal stock performance may continue for a while , our quantamental model for commodities & related stocks gives us a flag for a possible long term play. Instead of buying the stock at 10.37, we could construct a synthetic long call position as follows . We buy the 2021 Jan call with strike price of 12USD for 1.81 USD debit and we sell the 2021 Jan put with strike price of 8USD for 1.00 USD credit. The total debit for 1 contract (100 shares) is around 81 USD or 0.81USD per share. There are 603 days until expiration and we can expect the following outcomes(see the P&L diagram below) :
a) if the price goes below 8 USD , we will have bought the shares in a much better price(8.81 USD) than today’s price (10.37 USD)
b) If goes in the meantime above 12.81 USD, we are positive and if it goes e.g. at 15 USD it gives a 200-300% performance. For prices more than this the performance gets astronomical.
c) if stays in between 8-12 we ‘ll be -0.81 USD per share negative which is the debit we paid for the position.

The best way to play it, is to start with a small position and then when starts to gather strength , add up on this.

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