Here’s how trader Andrew Keene cashed in on one of 2016’s hottest stocks

Shares of mining giant Freeport-McMoRan have nearly doubled in 2016, and are up some 275 percent from their late-January lows, thanks to a major rebound in commodity prices.

And that run has been great news for options trader Andrew Keene of AlphaShark Trading, who was able to cash in big-time on the S&P 500's third-best performer.

Back on Jan. 26, when Freeport shares were just below $4, Keene said that stock "has bottomed," and that he expected it to make "a move higher."

In order to cash in on such a move, Keene bought the 5-strike call and sold the 8-strike call, both expiring in January 2017, spending $0.60 per share on the call spread.

Since a call offers its owner the right, but not the obligation, to buy a stock for a given price within a given time frame, purchasing the spread gave Keene the right to buy Freeport shares for $5, but also gave someone else the right to buy the shares from him for $8. That means that the spread has a maximum value of $3; if Freeport is trading above $8 at expiration, Keene will exercise his right to buy the shares for $5, but will be forced to sell the shares to someone else for $8 — allowing him to pocket the difference between the prices. Maximum profit, in this case, would be $3 minus the $0.60 he paid for the call spread.

Keene turned out to be not nearly bullish enough. The stock zoomed through his $8 target at the beginning of March, rising as high as $16.42 around Thanksgiving, before falling back to $13.20 on the last trading day of the year. Still, assuming Freeport remains above $8, he will be able to turn a 400 percent profit on the trade.

The potential for such an attractive payout is "why I used the options market," Keene said Thursday on CNBC's "Trading Nation."

Of course, had Freeport shares failed to rise, the $0.60 he paid would have been entirely lost.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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