Dykstra: Burnt Peabody

This statement defines my approach to the stock market, and I read it every morning before I begin the trading day: Be fearful when others are greedy and greedy when others are fearful.

Those who have been following my deep-in-the-money calls have come to learn that the recent stock market volatility creates tremendous buying opportunities. Because we buy deep-in-the-money, the delta approaches 100%, which means for every point change in the underlying asset's price, there will be an equal and simultaneous change in the price of the option in the same direction.

So investing in the option is similar to investing in the underlying asset, except the deep-in-the-money call holder will have the benefits of a lower capital outlay, leverage and greater profit potential. This is also the reason we choose our expiration date four to six months out.

Wall Street is coming off the worst week in four years, with the past five trading days wiping out all of this year's gains. So without further ado, let's take advantage of a stock on sale.

Peabody Energy(BTU Quote), the world's largest coal company, has been hammered in the recent selloff. Going back six business days, Peabody traded as high as $44.44. On Friday, Peabody closed at $38.94, so almost $6 disappeared for no real reason.

Bottom line: This is one of the best deep-in-the-money calls on the board.

Coal will continue to be a major component of the world's energy supply, as it fuels about 10% of U.S. electricity and 3% of worldwide electricity. The company is the clear leader in its industry, with really only one competitor, Arch Coal(ACI Quote). Consol Energy(CNX Quote) is more of a multifuel energy company.

Peabody clearly stands alone at the top of its class, which is why we are going to buy 10 Sept. 30 deep-in-the-money calls (BTUIF). With the market continuing to head south Monday morning, we will place our good-till-canceled, or GTC, limit order in at $9.90. Be patient with this order, as the market is correcting; let it come in. If we get filled at $9.90, we will control 1,000 shares of BTU until the third Friday in September.

Let me remind you: Buying deep-in-the-money calls works well when we experience a volatile market. In fact, I like volatile markets!

Please take note: Starting this week, I will give you a weekly update on the performance of my picks so far. I believe in accountability, so each week you will be updated on the deep-in-the-money calls I have picked this year.

For those of you new to the game, don't panic. The expiration dates on our open positions remain months away, so trust me. This is not my first rodeo. We play nine innings for a reason.

Now for Sports

Given the attention I paid to the New York Yankees last week in my column, I feel obligated to mention their arch-rivals, the Boston Red Sox, this week.