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Call writing has been a popular strategy on Molycorp Inc (NYSE:MCP) of late, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the course of the past 10 sessions, specifically, traders at these exchanges have sold to open 1.39 times more calls than they've bought to open.
It was a trend that continued on Friday, where of the 3,387 weekly 7/12 6-strike calls traded, 78% went off on the bid side. With open interest tacking on 3,240 positions over the weekend, it seems safe to assume that a number of calls were sold to open.
Ideally, MCP will maintain its perch south of $6 -- the stock is currently trading at $5.76 -- through week's end. In this best-case scenario, the calls will expire worthless, and the speculators can retain the initial net credit, which is also the maximum potential reward on the play. According to Trade-Alert, the volume-weighted average price for the calls was $0.09. Given Molycorp's dismal technical showing of late, this could also represent a larger covered-call strategy, in which shareholders are looking to offset some of their losses.
Widening the sentiment scope reveals a skeptically slanted bias among short-term speculators. Schaeffer's put/call open interest ratio (SOIR) for MCP sits at 1.06, or in the 92nd percentile of its annual range. In other words, there is a distinct put-skewed slant in the front three-months' series of options.
This isn't too surprising, considering Molycorp Inc (NYSE:MCP) has shed roughly 39% year-to-date, pressured steadily lower by the weight of its 32-week moving average. More recently, the stock surrendered a short-lived foothold atop its 60-day moving average, after failing to participate in Friday's broad-market rally.