Rare earth explorer and producer MP Materials (MP) has been on a tear, with shares continuing to hit new 52-week highs. One trader sees further upside in the weeks ahead.
That’s based on the May $31 calls. With 28 days until expiration, 3,228 contracts traded compared to a prior open interest of 154, for a 21-fold rise in volume on the trade. The buyer of the calls paid $1.85 to make the bullish bet.
MP Materials shares just traded right under $28, so shares would need to rally another $3, or about 11%, for the options to move in-the-money. Since last summer, shares have had a strong uptrend from a 52-week low of $10.02.
The company is exploring and producing rare earths in the United States, which puts them in a strong position as China has banned its exports of rare earths. China controls over 90% of the world supply.
Action to take: MP Materials is uniquely positioned to benefit from China’s rare earth ban right now. That makes shares a speculative buy and way to hedge the current trade war headlines.
MP is still in the early stages and operating at a loss, but could see revenues soar in the quarters ahead as it ramps up production.
For traders: the May $31 calls are well positioned for further upside in shares and could see mid-double-digit returns or better. As the stock is likely to be volatile, investors should consider taking quick profits.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.