McMoRan Exploration (NYSE:MMR) is engaged in the exploration, development and production of oil and gas, offshore in the Gulf of Mexico and onshore in the Gulf Coast region, focusing on its reserve potential. The company is also pursuing the establishment of an energy hub at its former sulphur facilities at Main Pass Block 299 (Main Pass) in the Gulf of Mexico, which includes transforming the existing Main Pass facilities into a liquefied natural gas terminal. McMoRan has two wholly owned subsidiaries, McMoRan Oil & Gas LLC, which conducts all of its oil and gas operations, and Freeport-McMoRan Energy LLC.
There is little (public) news to explain the recent strong rally in MMR shares but the robust trading volume suggests "something is up" and it's not just the stock price. Investors are speculating on the possibility of a new discovery in the Gulf of Mexico and with MMR's share value currently testing multi-year highs, a "bullish" surprise would likely vault the issue into the mid-$20 range. Our outlook is slightly less optimistic with an expected consolidation to $18.00-$18.25, followed by a lateral move that, hopefully, remains above the sold (put) strike until mid-March.
In any case, MMR would be a favorable addition to a diverse, long-term portfolio and the downside potential appears limited in this slightly "speculative" position. Traders should target a higher credit in the sold options initially, to allow for a brief pullback in the underlying issue.
Sell Put MAR 17.50 MMR-OW
Current Bid = $0.35 Open Interest = 30
Potential Profit (5 contracts) = $175
Initial Margin (5 contracts) = $3,145
Return on Investment (max) = 6.3%
Cost Basis in Stock = $17.15
Days to Expiration = 27