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After breaching its lower Bollinger Band last week, Molycorp Inc (NYSE:MCP - 6.39) appears to be on the mend, with the stock up around 10% week-to-date. One group of option speculators in today's session is betting on this positive price action to continue through tomorrow's close, and are picking up the stock's weekly 3/8 6.50-strike calls. The majority of the 1,425 contracts traded here have crossed at the ask price, and data from the International Securities Exchange (ISE) indicates that a portion of today's volume is of the buy-to-open variety.
By initiating these near-the-money calls, traders expect MCP to finish north of the $6.50 mark by the end of tomorrow's session, when the weekly options expire. More specifically, the calls were purchased for a volume-weighted average price (VWAP) of $0.12, making breakeven $6.62 (strike plus VWAP), or 3.6% above current levels. The options market isn't as optimistic as these speculators, with delta for the call docked at 0.38, or 38%, implying a roughly 2-in-5 chance the option will expire in the money.
Expanding the sentiment scope reveals option players have been accumulating puts with some rapidity in recent months. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio of 0.44 ranks in the 82nd percentile of its annual range, suggesting puts have been bought to open over calls at an accelerated clip during the past 10 weeks.
Additionally, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.83 ranks higher than 81% of other such readings taken within the last year. Simply stated, near-term traders are more put-heavy than usual toward MCP.
Considering the stock has surrendered roughly 74% of its value over the past 52 weeks, it's no surprise that option players have taken a bearish stance toward MCP. More recently, the equity has lagged the broader S&P 500 Index (SPX) by more than 55 percentage points over the last two months.
As mentioned, though, the stock has enjoyed a modest rebound in March, after entering oversold territory last week. In today's session, the equity was last seen 2.7% higher to hover near $6.39. Should MCP fail to top the $6.50 mark by tomorrow's close, the most today's call buyers stand to lose is the initial premium paid.