Thursday, January 5, 2012

Molycorp (MCP) - Depressed Vol in Stock Down 60% in 6 Mos.

MCP is trading $25.33, down 0.9% with IV30™ down 0.3%. The LIVEVOL® Pro Summary is below.


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Molycorp, Inc. is a rare earth oxide (REO) producer in the Western hemisphere and owns a rare earth project outside of China. The Company is in development stage. The Company focuses to be an integrated producer of rare earth products, including oxides, metals, alloys and magnets.

This another vol note surrounding depressed implied to the historical realized levels. I found MCP using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not purchasing depressed IV30™ relative to HV20 simply because of a large earnings move.

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

MCP has fallen rather abruptly from over $60 in August to now in the mid 20's. The short-term historical realized vol has been as high as 125% (in Oct). The implied has been as high as 116.18%. Today however, the implied is s depressed to the historical measures (both long- and short-term). Specifically:

IV30™: 63.24%
HV20: 74.15%
HV180: 82.19%

The 52 wk range in IV30™ is [50.82%, %116.18]. The current level puts it in the 18th percentile (annual).

Let's next turn to the Skew Tab.

MCP has weeklies listed but I have omitted them from this chart to focus on the monthlies and keep it a little cleaner. We can see a monotonic increase from the front to the back months (the opposite of what we've seen in some other names). The next earnings release for MCP should be in the Mar cycle. It's that event that has Mar elevated to the front months. Looking back to the stock chart (above), we can see that for the last two earnings cycles MCP has gapped.

8-11-2011 : Stock went from $54.14 to $58.90.
11-10-2011: Stock went from $38.70 to $33.45.

Finally, let's look to the Options Tab (below).

We can see the monthly vols are 59%, 64.5% and 69.53% for Jan, Feb and Mar monthly expiries, respectively. That Mar ATM straddle ($25 strike) is priced at ~$6.20 mid-market.

This is trade analysis, not a recommendation.

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