Monday, January 9, 2012

Rare Element (REE) - Stock Doubles in 2 Weeks as Vol Rises

REE is trading $6.42, up 11.5% with IV30™ up 10.7%. The LIVEVOL® Pro Summary is below.


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Rare Element Resources Ltd. engages in the acquisition, exploration, and development of mineral properties in the United States and Canada. It focuses on gold and rare-earth-elements (REE). The company primarily holds a 100% interest in the Bear Lodge property that comprises the Bear Lodge REE project and the Sundance gold project located in the Bear Lodge Mountains of Crook County in northeast Wyoming. Rare Element Resources Ltd. is based in Lakewood, Colorado.
Source: Yahoo! Finance

The stock has more than doubled since 12-29-201; yeah, more than doubled in less than two weeks. Let's start with the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

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).

A few phenomena stand out tome in this chart.

1. In Aug 2011 and Oct 2011 the stock dipped as the implied rose. That's relatively normal behavior between stock and vol.

2. As the stock has doubled in the last twelve days (or w/e) the implied has risen again. In other words, a reversal in the stock:vol relationship.

3. Although the vol has risen into the stock rise, it hasn't risen to nearly the level during the downturns. The 141.63% IV30™ annual high was reached on 10-4-2011. Compare that to the 96.49% today. Another interesting point is that the implied out paced the realized vol during the down swings while in this recent upturn, the short-term realized vol is well above the implied. Specifically:

IV30™: 96.49%
HV10: 161.38%
HV20: 129.95%

So, in English, when the stock was dipping, the option market reflected a "future" risk that the underlying would move more than the stock had moved until that point. Today (and recently), as the stock has moved up, the option market reflects a "future" implied move that's less than the realized underlying movement.

Here's a snippet of some of the news driving the stock move:

[REE] is pleased to announce the results of an updated NI 43-101-compliant mineral resource estimate of rare-earth elements ("REE") plus yttrium contained in three deposits located in the Bull Hill area of the Bear Lodge project, Wyoming (Figure 1). The updated resource estimate of the Bull Hill deposit consists of 6.8 million tons (6.2 mm metric tonnes) averaging 3.75% REO in Measured and Indicated categories, increased from 4.9 million tons (4.4 mm metric tonnes) averaging 3.77% REO last year, both using a 1.5% REO cutoff grade (Table 1). Table 2 documents the Inferred mineral resources, which have a substantial increase. The total pounds of REO contained in all the high-grade deposits in all resource categories increased by 26% from 1,450 million pounds (660 million kg) to 1,830 million pounds (830 million kg) (Table 3). The interim resource estimate of the M & I categories of Bull Hill was provided for inclusion in our current Preliminary Feasibility Study. However, it includes less than half of the new assay results from holes drilled in 2011. The resources estimate will be updated again by the end of the second quarter of 2012, utilizing all of the 2011 drill holes. The mineral resources were estimated by Ore Reserves Engineering (ORE), an independent consultant.

Source: via Yahoo! Finance: Rare Element Reports 38 Percent Increase of M & I Rare-Earth Mineral Resources at Bear Lodge

Let's turn to the Skew Tab, below.

We can see the front is elevated to the back in a monotonic pattern across all three of the front expiries. The next earnings release for REE is likely in Feb or Mar, but probably not Jan, IMHO. That's basically speculation on my part based on the last three earnings releases: 5-16-2011, 10-24-11, 12-5-2011.

Let's turn to the Options Tab, for completeness.

We can see the front three expiries are priced to 106.48%, 94.97% and 79.46%, respectively. It is interesting to note that the Apr 3 puts are bid as are the Apr 9 calls. That's +/- 50% in three months.

This is trade analysis, not a recommendation.

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  1. what is the meaning of IMHO...(The next earnings release for REE is likely in Feb or Mar, but probably not Jan, IMHO)

    Thanks for your comments