Options Trading News

December 29, 2011  Thu 10:19 AM CT

One investor is calling a bottom for Rare Element Resources, which has been skidding lower all year.

optionMONSTER's Heat Seeker tracking program detected the purchase of about 1,500 January 2013 5 calls for $0.45 and $0.50 against open interest of 1,014 contracts. These options have a delta of 0.32, meaning that they will gain about $0.32 for every $1 that REE appreciates. (See our Education section)

The stock is down 0.93 percent to $3.18 today and has lost 80 percent of its value so far this year. It more than quadrupled in the second half of 2010 amid a surge of interest in so-called rare-earth materials but has surrendered all of those gains. The group took another hit yesterday after JP Morgan slashed its price target on rival Molycorp, predicting that increased Chinese exports will hurt pricing.

REE is now back to a level where it traded early last year, which could be leading some chart watchers to expect that it will find support and bounce. If they're right, today's long-term calls will let them profit from a gradual recovery over the course of 2012.

Overall option volume is 4 times greater than average in REE so far today.
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The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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