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Trader’s million-dollar bet on a mining giant

Options Action: Bullish bets on Freeport

One trader just lost a lot of money on Freeport-McMoran.

After announcing a plan to issue up to $1 billion in common stock on Monday, shares of the diversified mining giant rallied and closed up more than 10 percent.

And one trader made a big bet on more upside for the stock, selling 10,000 January 12/8 put spreads for $1.75—which implies an expectation that Freeport shares will be above $12 by January expiration. If that happens, the trader will get to keep the entire $1.75 million (that is, $1.75 times 10,000 times 100 shares per contract) taken in.

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That strategy got off to a tough start Tuesday morning, however, as Freeport shares plummeted. And with the stock down more than 13 percent, the trader was looking at paper losses of nearly $300,000 by Tuesday at 10:30 a.m. ET.

So what's behind the Tuesday turnaround in the stock?

Analysts pointed to copper's 3 percent drop on Tuesday, spurred by news that China devalued its currency.

Read More PBOC sharply cuts yuan against US dollar after weak data

Mining and energy companies including Freeport have suffered as commodities have dropped to multi-year lows. Crude oil has fallen about 18 percent year to date. Gold and copper are down more than 6 percent and 17 percent, respectively.

In a research note from Monday, Nomura's Alexander Burnes said the issuance of new common stock will help improve Freeport's liquidity and free cash flow. Burnes wrote that its plan to reduce oil and gas capital expenditure in 2016 and 2017 will also be beneficial to the company's balance sheet.

Nomura has a "buy" rating on Freeport with a $25 price target.