HOTLINE: Ultra-bearish butterfly put at breakeven as copper price sinks to six-year low

A $4 million collared options trade targeting a copper price of $4,000 by mid-December broke even on Thursday November 12 as the red metal slumped to a new six-year low of $4,800 per tonne.

A $4 million collared options trade targeting a copper price of $4,000 by mid-December broke even on Thursday November 12 as the red metal slumped to a new six-year low of $4,800 per tonne.

The so-called long butterfly put, which a New York-based hedge fund bought from a bank in early June, is structured to pay out between about $4,800 and $3,200 per tonne, and will yield a maximum profit of $58.5 million if the December copper contract expires at just below $4,000, Hotline’s analysis of the trade indicates.

With less than five weeks to go before the third Wednesday prompt date on December 16, copper’s drop back through $5,000 has set the stage for a nervy end-of-year showdown between the hedge fund and the bank that wrote the options, market sources said.

At the time the hedge fund put on the trade, the copper price was a full $1,000 higher, but in the months since, the red metal has been buffeted relentlessly by currency pressures and demand fears. But even with prices now trading at their lowest level since the financial crisis, there are still many analysts and investors betting that the selloff has further to run.

As such, the hedge fund may find that rival investors lend support to its trade towards the end of the year if macro and fundamental conditions continue to deteriorate.

And with the copper industry convening in Shanghai for Cesco Asia next week, updates on the strength – or weakness – of Chinese demand will be coming thick and fast in the run-up to the expiry of the contract.

“They could be laughing; it’s looking like they might have quite a nice end to the year,” a source at a rival hedge fund said.

Meanwhile, the bank may find itself in the unfortunate position of needing to sell into further price drops in order to delta-hedge its exposure to the options trade, other market sources said.

Of course, the market could swing the other way, in which case the bank’s options traders will be able to wipe their brows and pick up the $4 million in premiums from the trade.

For now, they’ll probably keep the champagne on ice.

Mark Burton 
mburton@metalbulletin.com
Twitter: @mburtonmb

What to read next
The US aluminium industry is experiencing challenges related to tariffs, which have contributed to higher prices and premiums, raising questions about potential impacts on demand. Alcoa's CEO has noted that sustained high prices could affect the domestic market. While trade agreements might provide some relief, analysts expect premiums to remain elevated in the near term. However, aluminum demand is projected to grow over the long term, supported by the energy transition and clean energy projects. To meet this demand, the industry will need to increase production, restart idle smelters and address factors such as electricity costs and global competition.
Read Fastmarkets' monthly base metals market for May 2025 focusing on raw materials including copper, nickel aluminium, lead, zinc and tin.
The Mexico Metals Outlook 2025 conference explored challenges and opportunities in the steel, aluminum and scrap markets, focusing on tariffs, nearshoring, capacity growth and global trends.
China has launched a coordinated crackdown on the illegal export of strategic minerals under export control, such as antimony, gallium, germanium, tungsten and rare earths, the country’s Ministry of Commerce announced on Friday May 9.
Fastmarkets proposes to amend the frequency of Taiwan base metals prices from biweekly to monthly, and the delivery timing for the tin 99.99% ingot premium from two weeks to four weeks.
The US-China trade truce announced on May 12 has brought cautious optimism to China’s non-ferrous metals markets, signaling a possible shift in global trade. Starting May 14, the removal of additional tariffs has impacted sectors like battery raw materials, minor metals and base metals such as zinc and nickel, with mixed reactions. While the improved sentiment has lifted futures prices and trade activity, the long-term effects remain unclear due to challenges like supply-demand pressures and export controls.