Unusual Options Activity: Peabody Energy (BTU)

Coal

Coal miner Peabody Energy (BTU) shed over 25% last year amid a weak energy market and a continued shift away from the use of coal. One trader sees shares rebounding a bit over the coming weeks.

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  • That’s based on the February $18 calls. With 31 days until expiration, 7,262 contracts traded compared to a prior open interest of 186, for a 39-fold rise in volume on the trade. The buyer of the calls paid $1.52 to make the bullish bet.

    Peabody shares recently traded for about $18.75, meaning the options are already $0.75 in-the-money. They should rise in value if the stock can move higher over the coming weeks.

    Such a move is possible, but challenging, as shares recently slid to a new 52-week low of $17.73 and seem to be consolidating.

    Peabody had a mixed year. Revenues rose by about 1%, but overall earnings fell by 15%, indicating rising costs. Fuel demand has soared in recent weeks amid a cold winter, which could help hold up shares in the coming weeks.

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  • Action to take: Given the long-term industry trends in addition to the declining price trend, investors should look elsewhere in the energy space for potential gains this year.

    For traders, the February $18 calls could deliver big gains or be a big bust. Traders likely won’t know until after Peabody reports earnings in February. Interested traders may want to wait until closer to earnings to buy calls, to avoid bleeding time premium now.

     

    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.

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