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Put Players Circle Molycorp Inc (MCP) Amid Technical Turmoil

MCP's September 3 put was in focus on Monday

by 6/25/2013 9:56 AM
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Put players piled onto Molycorp Inc (NYSE:MCP) on Monday, amid the stock's 4.6% decline. By the time the closing bell rang, 6,834 puts had crossed the tape, representing a 45% mark-up to the average daily volume. Nearly a third of this action centered at the September 3 put, where 2,122 contracts traded for a volume-weighted average price (VWAP) of $0.17. The vast majority of these puts changed hands on the ask side, implied volatility rose 1.6 percentage points, and open interest added 1,611 positions overnight. Summing it all up, it appears new bearish positions were initiated.

By purchasing the deep out-of-the-money puts, traders expect MCP to sink below $2.83 (strike less VWAP) by the close on Sept. 20. Not only does this represent expected downside of 45% from the stock's current perch at $5.26, but also record low territory. In light of the fact that MCP has yet to trade below $4.70 on an intraday basis, delta for the September 3 put is currently docked at 0.10, suggesting a slim 10% chance the position will land in the money ahead of expiration.

This put-skewed bias is status quo in Molycorp's short-term options pits, as evidenced by the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.25. What's more, this ratio ranks higher than all other such annual readings, indicating that puts are more preferred now among options expiring in three months or less than at any other time within the past year.

This sentiment is shared outside of the options pits, as well. For starters, short interest accounts for 33.3% of the Molycorp's available float. Additionally, the stock maintains six tepid "hold" recommendations, compared to just one "strong buy."

It's not too surprising to see the stock surrounded by skepticism, given its woeful performance on the charts. The equity has been a long-term laggard, and, over the course of the past 52 weeks, MCP has surrendered more than 74%. Guiding the security lower has been its 32-week moving average, which handily capped the stock's most recent attempt at technical redemption.

On the fundamental front, Molycorp Inc (NYSE:MCP) is slated to kick-off its annual shareholders' meeting on Thursday afternoon.


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