Seeking Alpha
, 1Reason (82 clicks)
Long/short equity, contrarian, short-term horizon, dividend investing
Profile| Send Message|
( followers)  

Yield: 2.53%

Dividend Amount: $0.25

Ex-Dividend Date: October 12, 2011

Beta: 1.97

Freeport-McMoRan Copper and Gold (NYSE:FCX) engages in the exploration, mining and production of mineral resources. The company primarily explores for copper, gold, molybdenum, silver and cobalt. The company was founded in 1987 and is headquartered in Phoenix, Arizona.

In this article we will go over an upcoming dividend with Freeport-McMoRan that I may capture with a minimum amount of risk. The criteria that I use is that I must be able to sell a call option in either the front or first back month that is in the money, and with enough premium that I will not mind getting exercised early (which happens often and can be a good thing if the trades are executed correctly).

The current book value per share is 16.20.

Investors have been rewarded with an increase of year-over-year revenue. Revenue reported was $18.98 billion for 2010 vs. $15.04 billion for 2009. The bottom line has rising earnings year-over-year of $4.27 billion for 2010 vs. $2.53 billion for 2009.The company's earnings before interest and taxes are rising with an EBIT year-over-year of $9.07 billion for 2010 vs. $6.50 billion for 2009. Rising revenue along with rising earnings is a very good sign and what we want to see with our companies. Be sure to check the margins to make sure that the bottom line is keeping up with the top line.

At $39.85, the price is currently below the 200 day moving average of 45.24, and above the 60 day moving average of 38.03.

In the last month, the stock has decreased in price -2.57%, and moving in price -33.94% from one year ago.

With a gain compared to stocks in general, the stock is better than the overall stock market. When comparing to the S&P 500, the year up to date change is 5.73%.

Strategy:

In combination with my buying Freeport-McMoRan stock and after checking company updates, offer to sell the January $38.00 strike call for $0.71 over the intrinsic value. The option may get exercised early for a gain. In almost all cases I will sell the call option first to ensure the stock option leg is complete first. If not, after qualifying for the dividend, I will attempt to close out the trade with a gain of near $0.21.

Remember, you must buy a stock at least three business days before the record date (at least one business day before the ex-dividend date) to qualify for a dividend.

My last step (completed before making a trade on the same day) is to check company announcements and news sources for possible events that may cause the stock price to move. This is especially important during earnings season.

I research the different call options and calculate the expected probabilities based on Beta, Bid, Offer, Volume traded the current day, open interest, and time value/implied volatility. The options offer some level of protection from down moves in the stock, and provide revenue to cover the times that the options do not fully cover down moves in the stock. Income is not needed from the option premiums, so a break even from premiums received/stock losses ratio is a win.

I use a proprietary blend of technical analysis, financial crowd behavior and fundamentals in my short-term trades, and while not totally the same in longer swing trades to investments, the concepts used are similar. Nothing in the article should be considered investment advice, but you may want to use this article as a starting point of your own research with your financial planner.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FCX over the next 72 hours.

Source: Freeport-McMoRan Dividend Capture With Call Options