By Pete Najarian, co-founder of OptionMonsterNEW YORK -- Peabody Energy ( BTU - Get Report) is down, but traders aren't counting it out. This stock has been weak for the last year along with so many other coal names, and Thursday it hit a new low under $16. That drop prompted one investor to take an upside shot with a vertical spread, buying the September 19 calls and selling the September 22s for a net cost of 43 cents, according to OptionMonster's tracking systems. Owning calls lock in the price where a stock can be purchased, while selling them obligates the trader to unload shares at a certain level if it rallies. Combining the two lets the investor cheaply control a move between the two strikes. In the case of Thursday's trade, that spread is $3 -- a potential profit of almost 600% based on the entry price. Peabody shares fell 2.79% Thursday to close at $16.02. The advantage of the September trade is that it gives a fair amount of time for a turnaround in the beaten-down coal industry. Overall calls in the name totaled 19,400, compared to some 11,300 puts. Total option volume was more than twice its daily average. Najarian is long BTU calls.
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