Wednesday, June 27, 2012

Schaeffer's Research on Molycorp and Chesapeake Options (MCP; CHK)

Chesapeake is up 4% at $17.76, Molycorp is up 2.18% at $20.58.
From Schaeffer's Investment Research (June 26):
Speculative investors have taken a keen interest lately in rare earth oxide specialist Molycorp, Inc. (NYSE:MCP - 19.98), natural gas giant Chesapeake Energy Corporation (NYSE:CHK - 16.84), and semiconductor stock Skyworks Solutions, Inc. (NYSE:SWKS - 24.90). Calls have become the options of choice on MCP, while puts are in heavy rotation on CHK and SWKS. Here's a closer look at the latest trends in the options pits for these three hot stocks.

Over the past five days, options traders have bought to open 16,410 calls on MCP, according to data from the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE). Meanwhile, a relatively meager 3,541 puts have been bought to open, netting the stock a five-day call/put volume ratio of 4.63. In other words, speculators have scooped up nearly five times more bullish bets than bearish during the past week.

From a longer-term perspective, MCP sports a 10-day call/put volume ratio of 3.32 on the ISE, CBOE, and NASDAQ OMX PHLX (PHLX). This ratio ranks higher than 76% of other such readings taken during the past year, suggesting that speculators have purchased calls over puts at a faster pace just 24% of the time.

However, options traders may not be as optimistic as they appear. Despite a 7.2% decline during the most recent reporting period, short interest still accounts for a lofty 35.8% of MCP's float. With so many bears betting on the stock to slide, it's possible that skeptics have been buying call options simply to hedge their shorted shares.

MCP has been a serious laggard on the charts, having plummeted to a loss of 63.7% over the previous 52 weeks. The shares are trading below familiar resistance at their 10-week and 20-week moving averages, and they're now at risk of breaching tenuous support in the $20 area. A definitive break of this psychologically significant level could spur additional selling in MCP.
On the other side of the options aisle, put players have set their sights on long-suffering CHK. Traders on the ISE have bought to open 8,473 puts on CHK during the past five sessions, nearly doubling the 4,315 calls that were purchased in the same time frame....MORE