With options traders — as well as anyone else playing the stock market — still nervous about making short-term calls, a move away from choppiness and toward betting on longer-term trends is increasingly attractive.
With Long-Term Equity Anticipation Securites, or LEAPS, investors can use options to position themselves for a profit that might ordinarily be too risky in the short term.
Below are two strategies for investors betting that, over the long term, a move higher in precious metals and a decline in options volatility will pay off.
Typically, investors look to invest in precious metals for a few different reasons. First, they usually fall into favor as a flight to quality when the economy is weakening or inflation concerns are rising. On the other hand, copper and other basic material metals see increased demand when investors sense that economic growth will spur demand for industrial goods. With the market writhing between the prospects of economic slowdown and growth at the same time, it would be nice to grab exposure to both sides of the metal markets.
Here’s how you do it:
As the name implies, Freeport-McMoRan Copper & Gold (NYSE:FCX) primarily mines for gold and copper, among such other metals as silver and cobalt. The fact that FCX crosses between basic material and precious metals is attractive, given that both commodities continue to see increased demand. This is why FCX is one of the few precious metal miners that has kept pace with increasing gold prices.
Despite the dual role that FCX plays, analysts are far from overly optimistic, as 73% of covering analysts currently rank the stock as a buy or better. We expect to see additional upgrades given the economic backdrop and the stock’s positive technicals over the longer term.
A great way to leverage this metal master is to buy the January 2013 50 Call for around $7.50.
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