Credit: Shutterstock photoMolycorp has been on a massive run, but yesterday investors jumped ship.
optionMONSTER's Depth Charge tracking system detected a surge of activity in the mining company, which focuses on the latest craze, rare-earth elements. The stock has more than tripled since going public in August as investors speculate the world could face a shortage of the materials, a collection of 17 metals including scandium and yttrium that are used in electronics and other products.
Some 75,000 contracts traded in MCP yesterday, 82 times more than in a typical session. The activity was scattered across dozens of strikes, but the broad theme was put buying and call selling. That suggests investors think that the shares have limited upside and are likely to head lower. (Chart courtesy of tradeMONSTER)
MCP opened the session up almost 7 percent and quickly proceeded to make a new all-time of $55.22. But it then rolled over and accelerated to the downside, ending the session with a 6.6 percent drop to $46.18.
Rare Element Resources, another producer of the minerals, also made a new high yesterday after gapping higher. It also pulled back and closed near its lows for the session.
The heavy trading activity began after China, which accounts for more than 90 percent of global production of rare-earth materials, said it planned to reduce exports by 11 percent. But then Molycorp reversed course and dropped after reports that its mine in California would not produce materials for another year.
January contracts accounted for two-thirds of the activity in MCP, which suggests that most of the bearishness is relatively short-term in nature. It experienced a similar high-volume reversal in late October before pulling back and then rallying higher this month, so the shares could still be in a long-term uptrend.
(Chart courtesy of tradeMONSTER)
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
