Unusual Options Activity: Peabody Energy Corporation (BTU)

Shares of coal company Peabody Energy Corporation (BTU) have been volatile in recent sessions. One trader sees the possibility for a continued move higher this year.

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  • That’s based on the December $30 calls. With 282 days until expiration, 8,693 contracts traded compared to a prior open interest of 323, for a 27-fold jump in trading volume. The buyer of the call options paid $5.25 to make the trade.

    Shares were recently going for around $22, so they would need to rise $8, or about 36 percent, for the call option to move in-the-money. With shares off a 52-week high of $27, such a move before the option expires is quite possible.

    The coal producer has seen shares soar 609 percent in the past year, as energy prices have risen and global users of coal have looked to US companies instead of Russian ones.

    Action to take: Even after the big move, revenue is just up 71 percent over the past year with more room to run. The company trades at 3 times forward earnings, so shares look undervalued compared to recent, but not current, coal prices. That makes shares a worthwhile buy on any sizeable pullback like Monday’s 16 percent drop.

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  • For traders, the December call options given investors plenty of ways to play the current trend in coal prices. The option is a bit expensive after the company’s recent move higher, but traders who buy a small stake now and look to add on down days could lower their costs while still building a trade capable of high double-digit returns in the next few months.


    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 of the companies mentioned in this article.

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