REE – Rare Element Resources Ltd. – Shares in Rare Element Resources Ltd., which has a 100% interest in the Bear Lodge property, rallied more than 19.2% today to secure a new 52-week high of $13.71. The Bear Lodge property contains one of the largest disseminated rare-earth deposits in North America and extensive gold occurrences, according to REE’s website. The sharp move in shares today attracted a number of options traders. Investors have exchanged 13,869 option contracts on the stock as of 3:30 p.m. in New York, which is a shade above the total level of existing open interest on REE of 13,690 contracts. REE’s shares have increased a staggering 391.4% since touching down at an intraday low of $2.79 back on August 19, 2010. The firm’s shares are up 649.1% since June 30, 2010, when shares traded at a 52-week low of $1.83. Investors expecting the firm’s shares to continue higher ahead of expiration day next month purchased approximately 1,500 now in-the-money calls at the November $12.5 strike – the highest strike price currently available on REE – for an average premium of $1.66 per contract. Call buyers are poised to profit should the price of the underlying stock rally another 3.3% over today’s high of $13.71 to surpass the average breakeven point to the upside at $14.16 by expiration. Other investors displayed an interest is November $12.5 strike put options where 1,900 lots were coveted for an average premium of $1.45 apiece. Perhaps these traders are attempting to lock in gains by purchasing downside protection. In this scenario, downside protection kicks in should Rare Element Resources’ shares decline 19.40% from today’s high to breach the average breakeven point on the puts at $11.05. Investors populating REE options during the session traded call and put options in roughly equal numbers.
MEE – Massey Energy Co. – Shares of the coal producer increased as much as 6.83% today, extending Tuesday’s rally, to touch an intraday high of $39.88 on speculation the firm may put itself up for sale. Massey’s shares jumped yesterday after the Wall Street Journal reported the coal supplier could potentially be acquired by a rival company or private equity firm. One options strategist reacted to the takeover chatter by purchasing a bull call spread in the January 2011 contract. The trader picked up approximately 2,500 calls at the January 2011 $40 strike for an average premium of $3.24 apiece, and sold the same number of calls at the higher January 2011 $50 strike at an average premium of $0.65 a-pop. Net premium paid to establish the call spread amounts to $2.59 per contract. The bullish player is prepared to make money should Massey’s shares surge 6.795% over today’s high of $39.88 to surpass the effective breakeven point at $42.59 by expiration. The investor walks away with maximum potential profits of $7.41 per contract if the coal producer’s shares jump 25.4% and trade above $50.00 by January expiration day. Interestingly, one analyst at FBR Capital Markets said in a note to clients that Massey Energy could be sold for $50.00 a share in a buyout scenario. The call spreader will bank maximum potential profits if such a sale should occur by expiration day next year. MEE’s shares were trading up around $54.80 at the beginning of April before an explosion at the firm’s Upper Big Branch mines in West Virginia took the lives of 29 people.