In early 2016 there were no shortage of material and commodity companies that investors feared with a continued collapse in commodity prices and weakening global growth would see their equity engulfed by heavy debt loads.
There were few stocks deemed to be more distressed then Freeport-McMoRan (FCX) the copper and gold miner whose stock at its lows in January had lost 95% of its value from its all time highs made in early 2008. It has since rallied 215%. But even with the stock’s recent gains, their market cap is now two thirds of their nearly $21 billion debt load, a far cry from 2013 when their equity value was 2x that of their debt and 2x that of sales (now the trades 1x sales).
Most importantly, FCX’s 5 year credit default swaps have come off hard from just above 2500 bps in early January when the stock was at its lows, to now just above 600 bps, showing a sort of calm among credit investors (still a crazy high levels when you consider that in 2015 it started at 230 bps):
One of the largest trades in the options pits today appeared to be a bearish roll, likely an investor rolling protection. When FCX was $11.23 a trader sold to close 50,000 June 11 puts 38 cents, collecting $1.9 million in premium and bought 50,000 of the Aug 11 / 7 put spreads for 67 cents, or $3.35 million in premium. The new trade offers profit potential between $10.33 and $7 of up to $3.33, with max gain below $7, or down about 38% from the trading level.
There is little technical support below $10:
Lastly, while credit derivatives are at 2016 lows, but still very elevated, the same holds true for equity options prices, with 30 day at the money implied volatility at 64%, an extremely high level for almost any stock, but still up about 100% from its 52 week lows:
No matter how you want to look at FCX, despite the massive rally from the lows in the stock, credit and equity derivatives still show signs of stress.