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Put volume was unusually heavy on Molycorp Inc (NYSE:MCP) last Friday, with roughly 10,000 contracts crossing the tape -- representing 1.79 times the stock's typical daily activity. Meanwhile, call volume was fairly light, dropping to 6,549 contracts from the average daily norm of nearly 8,300. As April-dated options expired, MCP put traders turned their attention to the stock's May 4 strike, where 3,928 contracts changed hands.
Most of those May 4 puts traded closer to the ask price, suggesting they were bought -- and with open interest at this strike rising over the weekend by 2,425 contracts, it's safe to assume speculative players were adding new long puts on Molycorp last Friday. Based on the option's volume-weighted average price (VWAP) of $0.16, these put buyers will begin to profit if MCP falls below breakeven at $3.84 by the time the closing bell sounds on expiration Friday, May 17.
The day's surge of MCP put activity continued a growing trend for the rare-earths specialist. During the past 10 days, options traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 0.77 put for every call on Molycorp shares. This ratio ranks higher than 96% of other such readings taken during the previous 52 weeks, as speculators have rarely preferred puts over calls by a wider margin.
Short sellers are also betting heavily against MCP, with a hefty 33.8% of the stock's float dedicated to short interest. At the equity's average daily trading volume, it would take more than seven sessions for all of these shorted shares to be covered.
On the charts, MCP is struggling to collect its third straight day of gains, up 0.7% at $5.24 this morning. However, the shares are now approaching their 10-week moving average at $5.72, which has served as impenetrable resistance since mid-January.