Copper has led the commodity recovery since late last year. Chinese stockpiling helped keep the market steady through the recession, and global stimulus spending on infrastructure projects has provided support in recent months.

Along with copper’s rally, copper mining companies like Ivanhoe Mines (TSX: IVN, recent price $13.00) have seen share prices soar. Almost like an option contract, Ivanhoe has rallied from a low of $2 to a recent 52-week high of $14. Mainly on an investment agreement with Mongolia for the Oky Tolgoi copper-gold mine. Mining giant Rio Tinto, which holds a 9.9% stake in Ivanhoe, is helping develop the $4 billion project.

But has copper overshot the mark? Some analysts believe it has, as LME copper stocks remain at five-month highs. Continued Chinese buying remains a question mark, and any signal that China’s copper purchase program is being curtailed could send the market into a tailspin – with grievous consequences for momentum-driven stocks like Ivanhoe. Copper prices have stabilized since September and have showed signs of pulling back.

Longer term, Ivanhoe might make a tempting target for Chinese sovereign funds, given the Mongolian property’s proximity to China’s northern border. This begs the question of whether independent Mongolia would ever welcome Chinese ownership of any asset within its borders.

If push came to shove, would China ever risk raising geopolitical tension by attempting to expand its sphere of influence into Mongolia? Certainly the new global power hierarchy is based on a country’s economic prowess, and in the vein, China wields a sizeable stick. A move for an asset like Ivanhoe would assure China access to Mongolia’s vast natural resources, and could have an immediate effect on Ivanhoe’s share price. An impact that could be positive or negative.

Investors who have turned a decent profit holding IVN shares might want to look at hedging their bets. Buying puts is the easiest approach, although the options on IVN are expensive. Currently trading at 55% implied volatility, you could look at buying the December 13 puts at $1.45.

If you believe the cost of insurance is too expensive, you might hedge you bets with a covered call write. In this case, holding your IVN shares and writing the December 14 calls at $1.00.