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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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