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Molycorp Inc (NYSE:MCP - 11.09) is soaring in early trading, and some of today's option players are betting on the stock to build on these gains through the end of the week. Of the roughly 34,000 total contracts that have traded so far, more than 4,300 have collectively crossed at MCP's weekly 1/4 10.50- and 11-strike calls. The majority at each strike have gone off at the ask price, implied volatility is on the rise, and volume is easily outstripping open interest, making it safe to assume that new positions are being initiated.
By buying to open the 1/4 10.50-strike call for a volume-weighted average price (VWAP) of $0.48, traders need MCP to stay above the breakeven mark of $10.98 (the strike price plus the VWAP) through week's end, when the options expire. Meanwhile, with a VWAP of $0.31, breakeven for the 1/4 11-strike call is $11.31, or just a stone's throw from the stock's current perch.
MCP could be poised for some contrarian tailwinds in the near term, with expectations for the stock rather low. Although short interest depleted 16% in the latest reporting period, it still accounts for more than a third of the equity's available float. A further capitulation from these skeptics could translate into a fresh wave of buying power for MCP, should the stock continue with its upward momentum.
Today's price action certainly isn't helping these pessimistic players. As touched upon, MCP has surged nearly 18% today, after a Bloomberg article fingered the rare-earths specialist as an affordable takeover target. At last check, the stock was lingering near the $11.09 mark.