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Molycorp Inc (NYSE:MCP) is following the broader market higher today, up 1.3% to trade at $6.21. Meanwhile, calls appear to have a definitive edge over puts in MCP's options pits, as more than 6,700 of the former have been exchanged, compared to just over 1,700 of the latter. Also of note, the stock's 30-day, at-the-money implied volatility hit a 52-week low, and is presently down 1.2 percentage points from yesterday's close, to hover at 55.7%.
However, not all of today's call activity is of the bullish variety. Close to 4,600 contracts have crossed at the weekly 9/6 6.50-strike call -- three-quarters of them at the bid price, suggesting they were sold. More specifically, these short-term contracts were exchanged at a volume-weighted average price of $0.07. Since this strike holds open interest of zero contracts at the moment, it's likely that new positions have been added here.
By selling the calls to open, the speculators are betting on MCP to stay south of the $6.50 mark through the close on Friday, Sept. 6. In this scenario, the calls would expire worthless, allowing the traders to pocket the modest initial premium collected. On the flip side, if the rare-earths miner surmounts the strike price by the end of next week, today's sellers would be obligated to deliver the shares at $6.50 each, no matter how high the stock should rally. At last check, the delta for this call stood at 0.28, indicating it has a 28% chance of arriving in the money by expiration.
On the one hand, today's call sellers could be stock owners looking to earn some extra income -- although profits would be modest, considering MCP's Schaeffer's Volatility Index (SVI) of 56% ranks lower than all other readings taken during the past year. Or in simper terms, the equity's near-term options are the cheapest they've been in 12 months (evidenced as well by today's drop in implied volatility). Another alternative is that the shareholders are picking up a bit of "options insurance" in the event of a slight pullback.
Molycorp Inc (NYSE:MCP) has struggled on the technical front, shedding about 34% year-to-date, and over 49% year-over-year. What's more, the shares have trailed the broader S&P 500 Index (SPX) by north of 12 percentage points during the past four weeks.