Peabody Draws Put Buying Ahead of Earnings

By Jon "DRJ" Najarian, co-founder of OptionMonster

ST. LOUIS (TheStreet) -- Peabody Energy (BTU Quote) was drawing bearish options activity ahead of its earnings report before the bell Tuesday.

The stock finished the regular session up 3.5% to $43.37 Monday and crept higher by 0.4% in after-hours action. The coal company's shares have seen choppy trading since recovering from its 52-week low of $16 back in November 2008. But they have spiked more than 25% this month, perhaps leading some traders to believe that this last leg up has run out of steam.

Trading Monday was concentrated on the November 40 puts, at which 5,419 contracts changed hands at more than three times the previous open interest, indicating that these were newly opened positions. The average volume of calls at that strike has been just 130 each day for the last month.

OptionMonster's proprietary systems show that the puts traded in a strong buying pattern, most of them bought at the asking price for $1.10 to $1.20. For these options to turn a profit, Peabody's stock will need to drop more than 10% by the time the contracts expire on Nov. 20.

Peabody also saw put buying at the November 43 strike and call selling at the November 45 contracts, further reinforcing the negative sentiment among option traders Monday.