EOT Trade Alert – October 26, 2010
October 26, 2010
Trade Alert:
Buy MCP March 2011 $45 Calls at $2.75 or better
Company Background:
Molycorp (MCP) owns the most fully developed Rare Earth project outside of China. Their Mountain Pass mine in California is estimated to have 2.21 billion pounds of Rare Earth Ore.
Short-Term Catalyst:
Climb aboard the Rare Earth juggernaut!
Rare Earths are a group of elements critical to the development of many of today’s new technologies. Some of today’s most exciting and essential technologies are dependent upon Rare Earths to function properly.
Rare Earths are essential building blocks for green technology like fuel cells and wind turbines. They’re also found in many critical defense systems and consumer electronics.
Right now the world is almost 100% dependent upon the Chinese for their supply of Rare Earths.
Here’s the problem.
Demand for Rare Earths to power green technologies is skyrocketing.
But China isn’t stepping up to meet this increasing global demand. In fact, they’re doing the exact opposite. They’re putting limits on exports of Rare Earths.
China’s almost completely cut off exports to Japan. Japan’s stockpiles of Rare Earths are dwindling and could be gone by March or April.
As a result, the prices of Rare Earths have gone through the roof. And this is just the tip of the iceberg.
Right now we’re on the verge of a global trade and currency war. And China’s ace in the hole is their monopoly on Rare Earth production.
In short, China is limiting exports of Rare Earth to flex their muscles. They’re showing the international community they’re not going to be pushed around.
The increasing demand for Rare Earth along with China’s refusal to meet the increasing global demand is great news for Molycorp.
MCP’s 2.21 billion pounds of Rare Earth Ore is becoming more valuable by the day. And as the largest fully developed Rare Earth project outside of China, the company is going to be making money hand over fist.
And to top it off, the Fed’s plan to use quantitative easing is driving down the value of the US Dollar. As a result, commodity prices are already in a bull market.
It’s the perfect storm for Rare Earth producers outside of China.
As we continue down the path of dollar devaluation and trade wars, the value of Rare Earths will continue to climb.
Molycorp will announce earnings on November 5th… New news about their business or the China export limits could cause the stock to skyrocket.
Let’s grab calls on MCP now to profit from the explosion in Rare Earth prices.
Trade Details:
| Underlying Stock Symbol: | MCP |
| Current Bid-Ask Price: | $2.25 – $2.50 |
| Option “Buy Up To” Price: | $2.75 |
| Break-Even On Stock At Expiration: | $47.75 |
| Maximum Risk Per Contract: | $275 |
Exit Strategy:
MCP is trading at $34.23 per share. Resistance levels will be at $40 and again at $45. Remember, we want this stock to move higher. Support levels will be at $25 and $20. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.
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Category: EOT Trade Alert
