By Jud Pyle, CFA, chief investment strategist for the Options News Network
has not announced notable news during the last week, and the company is not expected to announce earnings figures until the end of January, but at least one investor is betting on an end to the slide in commodity names and selling puts in the coal producer.
During morning trading Wednesday, we saw an investor sell the March 40 puts 4,500 times for $3.35 per contract, with the stock trading at $41.85. That price computes to an implied volatility of approximately 48, compared to a 30-day realized volatility of 45.
It looks like the investor was betting the stock will hold higher than $36.65, which is the breakeven on this trade. This represents a 12% drop from current levels, which is the reason why selling puts is a moderately bullish play, because the max profit is limited to the premium collected, but losses are not incurred until the stock drops more than 12%.
BTU shares reached a new 52-week high around $47 on Nov. 17, and the stock is currently 11% off that level (BTU shares closed up 81 cents to $42.12 on Wednesday). With the pullback the stock has seen in the last few days, investors could be choosing to dip their toes back in and call for a bottom in these shares throughout the next few months.
Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."