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Stumbling Molycorp Inc (NYSE:MCP) Still Drawing Call Buyers

Shorts might be using MCP calls to hedge their bearish bets

by 4/15/2013 12:17 PM
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Call options are gaining traction on Molycorp Inc (NYSE:MCP), according to volume data from the major exchanges. During the past 10 days, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 3.84 calls for every put on MCP. This ratio ranks higher than 84% of other such readings taken during the past year, confirming that traders are picking up bullish options over bearish at a faster-than-usual rate.

In the soon-to-expire April series, peak call open interest of 10,457 contracts can be found at the 6 strike. The majority of these calls were bought to open, echoing the recent trend on the big three options exchanges. Shares of Molycorp Inc are currently trading around $5.13, which means these April 6 calls are out of the money.

Likewise, the May 6 strike carries peak call open interest for the back-month series, with 8,786 contracts outstanding.

However, the preference for out-of-the-money calls doesn't necessarily point to high hopes for MCP during the short term. It's worth noting that short interest on the stock surged by nearly 31% during the past two reporting periods, and now accounts for a substantial 33.8% of the stock's float. With so many skeptics betting on Molycorp to plummet, it's possible that options traders have been buying calls to hedge their shorted shares, rather than to speculate on an imminent rally.

Currently, the stock's momentum is favoring the bears. MCP is down more than 6% today following poorly received economic news from China, bringing its year-to-date loss to 45.2%. Unfortunately, the effects of options-related resistance could further exacerbate the equity's technical troubles as expiration approaches.


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