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The shares of Molycorp Inc (NYSE:MCP) are following the broader market path higher today, gaining about 6.2% to wink at the $7.40 level. As a result, bullish bets are flying off the shelves, as roughly 23,000 calls have crossed the tape thus far -- more than double the norm. At the other end of the trading spectrum, around 11,000 puts have changed hands. By all appearances, a number of speculators are expecting a quick surge higher for the rare-earths miner by week's end.
Leading the pack is the weekly 7/26 8 strike, which has seen nearly 5,200 calls exchanged at a volume-weighted average price (VWAP) of $0.08. The majority of these contracts traded at the ask price, suggesting they were bought. Meanwhile, today's volume has exceeded open interest levels, and implied volatility has surged 9.5 percentage points -- underscoring our theory of newly added positions.
By purchasing the calls to open, speculators are counting on MCP to surmount the breakeven rail of $8.08 (strike price plus the VWAP) by this Friday's close, which is when these weekly options expire. This reflects expected upside of about 9.2% from present levels, as well as territory not conquered on a daily closing basis since Jan. 22. Also of note, the delta for these calls rests at 0.18, meaning they have a near 1-in-5 chance of finishing in the money.
This campaign for calls over puts is simply business as usual for MCP. In fact, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 53,159 calls during the past two weeks, versus just 11,081 puts. The resultant 10-day call/put volume ratio of 4.80 is just 10 percentage points shy of a 12-month peak, signaling speculators have been snapping up calls over puts at a near annual-high clip in recent weeks.
This optimism toward Molycorp Inc (NYSE:MCP) is rather puzzling, considering the stock has shed more than 21% year-to-date, and about 61% on a year-over-year basis. However, the shares are on pace to finish the week atop their 40-week moving average, a feat not accomplished since September 2011. Still, even if the security remains south of the $8 mark, the most today's bulls stand to lose is the initial premium paid for their call purchases.