USA Rare Earth Plummets 9.66%: Scandal, Scrutiny, and a Volatile Future

Summary
• USA Rare Earth (USAR) plunges 9.66% to $16.09 amid political and regulatory backlash
• U.S. Commerce Secretary Howard Lutnick faces ethics inquiry over $1.58B deal with the company
• The stock swings from $17.97 high to $16.025 low, a 16.4% range in one trading day
• Implied volatility on options surges, with 20 contracts trading at extraordinary leverage ratios

At the heart of a political firestorm is USA Rare Earth, a rare earth mining and magnet producer poised to become a critical pillar of U.S. national security supply chains. The company’s dramatic price decline follows a blistering letter from House Democrat Zoe Lofgren, who has accused Commerce Secretary Howard Lutnick of structuring the $1.58 billion federal investment in a way that grants him outsized influence over the company. This has triggered a broader scrutiny of the deal, with the Senate also reviewing the matter. Amid these developments, USAR’s stock has swung wildly, creating a fertile ground for aggressive trading strategies and risk mitigation.

Political Firestorm Erupts Over Equity Stake in Government-Backed Deal
USA Rare Earth’s stock tanked sharply in response to a blistering letter from Representative Zoe Lofgren, who accused U.S. Commerce Secretary Howard Lutnick of creating a ‘highly concerning’ conflict of interest in the $1.58 billion federal investment. Lofgren argued that the Commerce Department’s proposed equity stake, which could remain even if the deal unravels, creates an imbalance of power that benefits Lutnick’s family-run firm. The letter also highlighted the reliance of USA Rare Earth on a $1.5 billion private capital raise led by Cantor Fitzgerald, which is now under ethics investigation. The political backlash has triggered a short-term selloff as investors fear regulatory delays, legal scrutiny, and potential renegotiation of the deal.

Rare Earth Sector Volatility Intensifies as MP Materials Also Falls
The rare earth sector is experiencing heightened volatility as investors react to both political and market-driven uncertainties. MP Materials (MP), a sector leader and key player in U.S. rare-earth mining, has also dipped, with its stock down 4.7% today, mirroring the broader unease. This sector-wide jitters stem from the broader scrutiny of government equity stakes and capital-raising practices, especially when linked to politically connected firms. Unlike MP Materials, which operates primarily in the upstream mining segment, USA Rare Earth has a more complex capital structure and regulatory exposure due to its government-backed funding and private capital tie-ins. As a result, USAR’s movements are more directly influenced by political developments than broader sector trends.

Options Volatility Soars: Top Two Put Contracts and Strategic ETF Entry Points
• 200D MA: 17.10 (above current price)
• 30D MA: 19.66 (above)
• RSI: 45.85 (neutral to bearish)
• MACD: -0.2994 (negative)
• Bollinger Band: 17.17–21.44 (currently near Lower Band)
• Kline pattern: Short-term bearish trend
• Implied Volatility is extreme, with some contracts trading at over 600%

USAR is currently sitting near the lower Bollinger Band and below both its 30D and 200D moving averages, signaling a bearish technical bias. With RSI at 45.85 and MACD trending downward, this is a setup where volatility is high and the path of least resistance is to the downside. The stock is also trading in the short-term bearish zone of the Kline pattern, suggesting a continuation of the recent selloff. Options traders are already capitalizing on this, with heavy buying of put contracts and a significant increase in turnover for out-of-the-money strikes. The key levels to watch are the 30D moving average at $19.66 and the 200D at $17.10—both of which could trigger different trading responses depending on whether the stock breaks down or finds support.

Top Options Pick 1: USAR20260327P16
• Code: USAR20260327P16
• Type: Put
• Strike Price: 16.00
• Expiration Date: 2026-03-27
• Implied Volatility: 108.30%
• Leverage Ratio: 17.62%
• Delta: -0.433565
• Theta: -0.021678
• Gamma: 0.151365
• Turnover: 178,552

Implied Volatility at over 100% suggests high uncertainty and potential for large price swings. Delta near -0.43 means it is moderately sensitive to downward price movement. Theta and Gamma are strong for a short-term trade, offering decent time decay and sensitivity to price changes. Turnover is extremely high, indicating liquidity and market participation. If USAR continues down, this put contract is positioned to profit from the move. A 5% drop from current price to $15.28 would yield a put payoff of $0.81 per contract, or about 120% return on the position.

Top Options Pick 2: USAR20260327P15.5
• Code: USAR20260327P15.5
• Type: Put
• Strike Price: 15.50
• Expiration Date: 2026-03-27
• Implied Volatility: 103.69%
• Leverage Ratio: 24.94%
• Delta: -0.353987
• Theta: -0.023907
• Gamma: 0.149454
• Turnover: 12,618

This strike offers a slightly more aggressive entry point with high leverage and solid gamma, making it ideal for a moderate bearish move. Implied volatility is still above 100%, and turnover is decent, offering sufficient liquidity. The leverage ratio of 24.94% indicates strong potential for price appreciation relative to the underlying stock. Theta is favorable, meaning time decay is manageable for a short-term trade. A 5% move down to $15.28 would result in a put payoff of $0.22 per contract, or about 44% return on the position.

Bottom Line: USAR is in a precarious position, with regulatory and political headwinds threatening to prolong the selloff. Short-term bearish options with high leverage and decent liquidity are the most strategic plays for those expecting further downside. If the stock breaks below $16, then USAR20260327P16 becomes the top short-side bet.

Backtest USA Rare Earth Stock Performance
The USAR ETF has demonstrated positive performance after experiencing a -10% intraday plunge from 2022 to the present. The backtest data shows that the 3-day win rate is 49.64%, the 10-day win rate is 52.55%, and the 30-day win rate is 72.26%. Additionally, the maximum return during the backtest period was 40.65%, which occurred on day 58 after the initial plunge.

Volatility to Continue: Watch for Regulatory Delays and Sector Reactions
The current selloff in USA Rare Earth reflects not only political scrutiny but also a broader regulatory unease surrounding government equity stakes in private companies. With the Commerce Department’s deal still under review and the Senate now weighing in, any delays or renegotiations could prolong the uncertainty and keep the stock volatile. Traders should monitor the 200-day moving average at $17.10 as a key support level—if the stock breaks below this, the bearish trend is likely to intensify. Meanwhile, sector peer MP Materials has also declined by 4.7%, suggesting that the market is broadly nervous about regulatory and capital-raising developments. Investors should watch for clarity from the Commerce Department and any additional news on the ethics investigation, as these will likely dictate the next major move. If you're positioned, tighten stops and consider scaling into bearish options for the near term.