Schaeffer's Trading Floor Blog

Stocks to Watch Wednesday: MGM Resorts International, Arch Coal Inc, and Molycorp Inc

Analyzing MGM, ACI, and MCP ahead of tomorrow's trading

by 4/22/2014 4:36 PM
Stocks quoted in this article:

Momentum names that made notable moves on Tuesday and could continue to do so into Wednesday's session include casino concern MGM Resorts International (NYSE:MGM), coal producer Arch Coal Inc (NYSE:ACI), and rare earths issue Molycorp Inc (NYSE:MCP). Here is a quick look at these stocks ahead of tomorrow's opening bell.

MGM Resorts International (NYSE:MGM)

MGM rallied 5.6% to end at $24.97, thanks to reports of a rebound in Macau gambling revenue in the week ended April 21. The stock saw roughly 27,000 calls cross the tape -- a 56% mark-up to its average daily volume. For comparison, around 15,000 MGM puts changed hands. From a broader sentiment standpoint, today's preference for calls marked a change of pace on the long side. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.74 stands just 8 percentage points from a 52-week peak. In other words, option buyers have picked up MGM puts over calls at a faster-than-usual clip during the past two weeks. In the same skeptical vein, short interest on the stock grew 27.2% during the past two reporting periods, and now accounts for 9.2% of MGM's total available float. On the charts, MGM Resorts International has almost doubled in the past year. Off the charts, the company will report quarterly earnings before the open next Tuesday, April 29. A solid earnings showing could spark a mass exodus of option bears and/or a short-squeeze situation -- both potential catalysts higher.

Arch Coal Inc (NYSE:ACI)

ACI swallowed a loss of 8.5% to end at $4.55 -- and landed on the short-sale restricted list -- after the firm reported a steeper-than-expected per-share loss in the first quarter, and offered lackluster guidance. Daily call volume traded at nearly twice the norm, with roughly 21,000 contracts exchanged -- almost four times the number of ACI puts traded. Most active was the May 5 call, where more than 4,400 contracts changed hands, primarily at the ask price, suggesting they were bought. What's more, the ISE confirms that a healthy portion of these front-month calls were purchased to open. However, considering 18.7% of Arch Coal Inc.'s total available float is sold short, it's possible that the speculators bought the calls to protect their shorted shares against a short-term rebound north of $5. Whatever the motive, today's appetite for long calls merely echoes the growing trend on the ISE, CBOE, and PHLX, where ACI sports a 10-day call/put volume ratio of 11.45 -- in the 86th percentile of its annual range.

Molycorp Inc (NYSE:MCP)

MCP finished with a 4% gain at $4.94, though options traders today gambled on a short-term ceiling for the shares. Around 18,000 MCP calls changed hands -- almost three times the norm -- with most of the action centering on the weekly 5/23 5.50 strike. Close to 3,500 calls traded at the aforementioned strike -- nearly three-fourths at the bid price, suggesting they were sold -- and volume surpassed open interest, hinting at new positions. By writing the calls to open, the sellers expect MCP to remain south of $5.50 through the close on Friday, May 23, when the options expire. However, Molycorp Inc is no stranger to skepticism. Short interest represents nearly 17 sessions' worth of pent-up buying demand, at the equity's average pace of trading. MCP is tentatively scheduled to report first-quarter earnings in early May.


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