Strategy Alert! A number of coal stocks are rebounding from last week’s sell-off, which was inspired by reports of falling coal prices in overseas markets on Wednesday. Friedman Billings analysts said this morning that the pullback in the sector offers a buying opportunity and the firm expects to see, among other things, strong contract prices when second quarter earnings reports are released. The Market Vectors Coal Fund (KOL) is up 82 cents to $49.23. Patriot Coal (PCX, news, chart) is outperforming, shares are up $2.27 to $129.00 and at least on strategist seems to expect the stock to continue its rally from here. At noon Eastern time, an order of 4,273 PCX September 150 calls traded askside, or for $12.30 a contract. At the same time, an order of 4,224 PCX September 180 calls traded offerside or for $4.30 a contract. Open interest is 433 and 155 contracts, respectively, which indicates these were probably opening trades.
In addition, the activity has all the signs of a bull call spread, or a bet that PCX will move substantially above $150.00 a share by September options expiration. The cost is $8.00 per spread with a maximum payoff potential of $22.00 if PCX closes above $180.00 a share when the contracts expire.
About the Author (Author Profile)
Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.