Molycorp Inc (NYSE:MCP) is enjoying its second day of upbeat attention in the options pits this week, after analysts at Byron Capital Markets upgraded the stock to "strong buy" from "buy." Given the equity's subsequent 2.7% gain, it's no surprise that bullish bettors are flocking toward MCP. Approximately 23,000 calls have changed hands thus far, which is almost triple the norm. By comparison, just 12,000 puts have crossed the tape.
Most active has been the August 8 call, where nearly 5,500 contracts have been exchanged -- the majority of them at the ask price, suggesting they were bought. These out-of-the-money calls traded at a volume-weighted average price (VWAP) of $0.42. Because today's volume has outstripped current open interest levels -- and implied volatility was last seen 3.8 percentage points higher -- it's probable that new positions have been added here.
By purchasing the calls to open, speculators are hoping MCP will power north of breakeven at $8.42 (strike price plus the VWAP) by the close on Aug. 16. This represents a rise of 20.8% from the stock's present price at $6.97, as well as territory not conquered on a daily closing basis since mid-January. Still, even if the shares fail to surmount the $8 level, the most today's call buyers stand to lose is the initial premium paid.
Widening the sentiment scope reveals that the rare earths miner is no stranger to bullish speculation. In fact, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day call/put volume ratio of 3.92 for MCP, signaling calls bought to open have nearly quadrupled puts during the past 10 weeks. This ratio ranks above all other readings taken in the last 12 months, meaning traders have been snapping up calls over puts at an annual-high clip.
It's worth noting, however, that Molycorp Inc (NYSE:MCP) is off about 26% year-to-date -- and roughly 66% on a year-over-year basis -- while short interest has climbed around 9% during the last two reporting periods. These bearish bets now make up a hefty 36.3% of the equity's available float. In other words, it's possible that some of the recent call volume is the result of hedging activity by the skeptics. Either way, it would take more than eight days to unwind these shorted shares, at MCP's average pace of trading.
It also bears mentioning that the firm is on tap to reveal quarterly earnings after the market closes on Aug. 8 -- just ahead of back-month expiration. What's more, MCP has fallen short of consensus bottom-line estimates in two of the past four quarters.
Thanks for that heads up. Re Buy Options, doesn't matter if the calls are being bot to hedge short positions - either way it spells posative pressure on the stock price. Incidently, the Chairman )the CEOs boss) bot 15,000,000 at $6 recently - look it up.