Schaeffer's Trading Floor Blog

Options Check-Up: Potash Corp./Saskatchewan (USA), Molycorp Inc, and Merck & Co., Inc.

Analyzing recent option activity for POT, MCP, and MRK

by 4/27/2014 6:24 PM
Stocks quoted in this article:

Among the stocks attracting attention from options traders lately are agricultural concern Potash Corp./Saskatchewan (USA) (NYSE:POT), rare earths miner Molycorp Inc (NYSE:MCP), and pharmaceutical giant Merck & Co., Inc. (NYSE:MRK). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on POT, MCP, and MRK.

  • POT shares moved little on Friday, following the company's mixed earnings results and subsequent round of bullish brokerage notes. To be specific, while Potash Corp./Saskatchewan (USA) revealed a first-quarter profit decline that wasn't as steep as analysts' projected, the company also downwardly adjusted its earnings forecast for the current quarter. Ultimately, the stock has maintained a three-month gain of roughly 12% to perch at $35.72, which may not have been what POT's recent options traders had expected. In the past 10 trading days on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), puts have been bought to open, relative to calls, at a near-annual-high pace, with the resulting put/call volume ratio of 0.99 ranking just 6 percentage points from a 12-month peak. Luckily for the short-term option buyers, POT's Schaeffer's Volatility Index (SVI) of 20% ranks in the bottom 7% of its annual range, indicating front-month contracts are cheaper than usual right now, from a volatility perspective.

  • Likewise, MCP's upcoming first-quarter earnings report (scheduled for Wednesday, May 7) may be bringing option bears out of the woodwork. The stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.38 ranks in the 64th annual percentile, demonstrating puts have been bought to open, relative to calls, at an accelerated pace during the past two weeks. Those looking to place short-term bets on Molycorp Inc can do so at a relative bargain right now, as the equity's SVI of 59% ranks in the bottom one-fifth of its 12-month range. Meanwhile, on the charts, MCP shares have faced a series of technical woes so far in 2014, currently down 14.6% year-to-date to trade at $4.80.

  • Finally, MRK -- which boasts a year-to-date gain of 14.4% to perch at $57.24 -- has seen heavier-than-usual long put activity (relative to long call), leading up to the company's first-quarter earnings announcement ahead of Tuesday's opening bell. This is evidenced by the fact that the equity's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.50 ranks higher than 92% of comparable readings taken during the past 12 months. Furthermore, with the quarterly event right around the corner, Merck & Co., Inc.'s SVI of 22% ranks in the 55th annual percentile, indicating short-term options are a tad more expensive than usual, relatively speaking.

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