Thursday, October 28, 2010

MCP - China Owns Rare Earth and Won't Share it? Stock Drops, Vol Pops

For those that don't know, here's a quick overview of the "Rare Earth" story, with links to more details.

From Fortune (full article Click Here):

Rare earth minerals... are materials produced largely in China (buzzword No. 1) for the sake of making techy things like Apple's (AAPL) iPad (buzzword No. 2) and green energy products like wind turbines (No. 3). As emerging markets economies (No. 4) expand, their citizens will buy more phones and TVs and hybrid cars and stuff. They will want, needless to say, to be just like us...
But with the world seemingly on the verge of a big trade war (No. 5), China is restricting exports of the rare earths -- which has sent their prices soaring and fueled investor interest in alternatives.

Brief History: China has blocked shipments of raw rare earth minerals to Japan since Sept. 21., and to the United States and Europe since Oct. 18.
(Source: NY Times)

And Today: Chinese customs officials, without explanation, allowed shipments to resume to all three destinations. The news was released about an hour and a half ago (12pm EST, I believe).

Crazy... Let's look at one stock in particular, MCP. It's a Greenwood Village, Colo., miner that is aiming to restart a California rare earths mine in 2012. Molycorp is the fifth-biggest holding of the Market Vectors Rare Earth ETF.

MCP is trading $34.62, down 10.2% with IV30™ up 6.9%. The LIVEVOL™ Pro Summary is below.


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The stock price and vol started moving off the news. The Tick Chart is included below.

Note the stock drop and vol pop. The company has traded 30,000 options today on total daily average option volume of just 3,020. Note that calls and puts are trading pretty much 1:1. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that action in Nov. It's sort of scattered. Note that the Nov 50 calls (30% OTM) are $0.10 bid. Actually, as of an hour ago, the Nov 55 calls were $0.10 bid. Here's my ever so eloquent tweet:

Livevol_Pro Livevol
$MCP Nov $55 $call's dime bid... Crazy...

Those calls are now no bid, and it's the 50 line that's dime bid. Whoever sold those, nice...

The Skew Tab snap (below) illustrates the vols by strike by month.

I wasn't smart enough to take a snap of the skew a few hours ago (boo), but it still exhibits a bit of an upside turn right now. It was much more abrupt when the 55 line was $0.10 x $0.20.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

The stock has gone from ~$12 on 7-30-2010 to over $40 today at one point in less than 3 months. The stock is actually more than $6 off it's high today.

This is cool, at least to me. Makes trading a bit more fun when there's a weird government to government battle wrapped in political season and some general random acts to boot. In terms of trades... I dunno. Sell the upside in MCP right? I mean, there's no risk that China changes their mind?... Wait... What?

This is trade analysis, not a recommendation.

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