Crazy - China, US, Rare Earth ETF, MCP, iPad, Vol, Trades and What?

Discussion in 'Options' started by livevol_ophir, Oct 28, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    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 <b><a href="http://finance.fortune.cnn.com/2010/10/28/rare-earth-etf-lifts-off/?source=yahoo_quote">Click Here</a></b>):

    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: <b><a href="http://www.nytimes.com/2010/10/29/business/energy-environment/29rare.html?_r=1&amp;partner=rss&amp;emc=rss">NY Times</a>)</b>

    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 <a href="http://www.livevol.com/">LIVEVOL™ Pro Summary</a> is <a href="http://livevol.blogspot.com/2010/10/rem.html">in the article</a>

    <img src="http://www.livevolpro.com/help/images/blog/mcp_summary.gif" />

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    The stock price and vol started moving off the news. The Tick Chart is included <a href="http://livevol.blogspot.com/2010/10/rem.html">in the article</a>

    <img src="http://www.livevolpro.com/help/images/blog/mcp_tick.gif" width="600" />

    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 (<a href="http://livevol.blogspot.com/2010/10/rem.html">in the article</a>).



    The Options Tab (<a href="http://livevol.blogspot.com/2010/10/rem.html">in the article</a>) 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 (<a href="http://livevol.blogspot.com/2010/10/rem.html">in the article</a>) 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 a href="http://livevol.blogspot.com/2010/10/rem.html">in the article</a>. 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.

    <b>Follow Live Trades and Order Flow on Twitter: @Livevol_Pro</b>

    Details, trades, prices, vols, skews, charts here:
    <a href="http://livevol.blogspot.com/2010/10/rem.html">http://livevol.blogspot.com/2010/10/rem.html</a>


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  2. While the China angle and other things are different, these kinds of things are still very reminiscient of 1999. Tech Bubble Burst V2.0 is going to be fun.
     
  3. livevol_ophir

    livevol_ophir ET Sponsor

    I guess that depends on your definition of fun... :(
     
  4. olias

    olias

    why do you suppose China would suddenly re-establish delivery of the rare-Earth minerals? I have a couple theories
     
  5. livevol_ophir

    livevol_ophir ET Sponsor

    Phew, good question. So many reasons, all less than ethical... Not that I'm calling the Chinese out. Ethics are dead in this world when it comes to nationalism. Fear, fear, fear.

    Whatever the reason, there was a definite agreement internally that "changing" their minds meant better "stuff" for them in the future than maintaining the status quo. I think it's really that simple.
     
  6. livevol_ophir

    livevol_ophir ET Sponsor

    Stock falling a part, now down over $8 from day high.
     
  7. olias

    olias

    That's a good answer
     
  8. livevol_ophir

    livevol_ophir ET Sponsor

    Thanks Olias...
     
  9. Them Chinese are brilliant in the Art of War.

    Get the world hooked on your low cost electronics using rare earth materials that you control 97% of. Keep them prices so low that no one else can afford to enter the market.

    When everyone is firmly hooked and reliant on your products.. flip the FU switch and stop supplying... when desperation hits supply a little at 100x or more markups.

    Well played.. enjoy your payday.
     
  10. livevol_ophir

    livevol_ophir ET Sponsor

    It's definitely a possibility, and if so, <i>very</i> well played, indeed.
     
    #10     Oct 28, 2010