Bloomberg News reported this morning that falling commodity prices and concern over a Chinese economic slowdown are testing the mettle of options traders as they bet on a decline in Freeport-McMoRan Inc. (FCX), the biggest publicly traded copper producer.
Demand for options that protect against future losses in Freeport shares rose to the highest level in more than two years relative to bullish ones, data compiled by Bloomberg show. Implied volatility on the company?s stock is also at the highest level in 20 months versus the S&P 500.
Freeport?s shares have slid as much as 34 percent since the start of the third quarter as the strongest U.S. dollar in five years drives down the price of copper, which is traded in the U.S. currency. At the same time, slowing growth in China has spurred speculation of further share declines for companies that provide resources to the world?s second-largest economy, according to John Carey of Pioneer Investment Management Inc.
Dollar, Commodities
China and other slowing economies overseas have aided the dollar?s rise. The Bloomberg U.S. Dollar Spot Index, which tracks the greenback against 10 major counterparts, rose last week to its highest level since March 2009.
The rally has eroded the appeal of industrial metals as an alternative investment to the dollar, pushing copper prices down more than 4 percent since the start of November. Freeport has also been hampered by a 18 percent plunge in crude oil over the same period. The company diversified into oil and gas last year when it bought two energy companies for about $9 billion, with oil accounting for 11 percent of revenue last year.
Read the whole report here.