Freeport-McMoRan was one of three metal and mining stocks flashing buy signals on Tuesday on hopes for a sustainable end to the U.S.-Iran conflict.

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Investors could buy Freeport-McMoRan at the current price, or they could use a cash-secured put to potentially buy Freeport-McMoRan stock for a discount. This is like getting paid to place a limit order.

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Freeport‑McMoRan is a leading international metals company focused primarily on copper. It's the world's largest producer of molybdenum and it produces significant volumes of gold. The miner positions itself as a key supplier to clean‑energy demand. 

nCash-Secured Put Traden

Let's say an investor has $6,000 to invest into Freeport-McMoRan stock. They could simply buy some shares and hope the stock rises. But, if they want a more conservative play that generates income, they could sell a Dec. 18 put with a strike price of 60 and set aside the $6,000 in case they are assigned on the short put.

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That 60-strike put generates around $740 in option premium in under seven months. If assigned, the effective purchase price would be 52.60 thanks to the option premium received. So, the $6,000 allocation to Freeport-McMoRan is generating a potential return of 14.1%. That's 24.9% on an annualized basis.

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What's the catch? Well, much like owning Freeport-McMoRan shares, if the stock drops, the sold put will lose money in the short-term.

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If Freeport-McMoRan is below 60 in December, then the put seller will be forced to buy 100 shares at 60. But, if Freeport-McMoRan stays above 60 then the trade achieves a 24.9% per annum return if the put expires worthless.

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Cash-secured puts are a bullish strategy but are considered slightly less bullish than owning Freeport-McMoRan stock because the potential gains are limited to the premium received.

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The 60-strike put currently has a delta of 36, so selling this put gives an exposure roughly equivalent to owning 36 shares of Freeport-McMoRan stock. But note that this will change as the stock moves up and down. It also means the put has a roughly 64% chance of expiring worthless.

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One method that can help cut the risk is to turn it into a spread and buy a 55-strike put. This turns the trade into a bull put spread.

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The cash-secured put is a solid strategy for generating income on stocks an investor is willing to own if prices drop.

nFreeport-McMoRan Ratings At IBDn

The company operates diverse mining assets across the Americas and Indonesia. Among them is the Grasberg minerals district in Indonesia, where one of the world's largest copper‑gold deposits is located.

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Investor's Business Daily gives Freeport-McMoRan stock a Composite Rating of 89 out of a best-possible 99. According to IBD Stock Checkup, Freeport-McMoRan is ranked fifth in its group. 

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The stock also has an Earnings Per Share Rating of 70 and a Relative Strength Rating of 76. 

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It's important to remember that options are risky and investors can lose 100% of their investment.

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This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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Gavin McMaster has a master's in applied finance and investment. He specializes in income trading using options, and is conservative in his style. He also believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.

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