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Beaten Down Coal Draws Option Activity

Harald Sund | Photographer's Choice | Getty Images

The Market Vectors Coal Indexexchange-traded fund\(learn more\) has been driven from the 52-week highs, and yesterday traders were playing for a bounce.

The options paper focused on the October 23 calls and the October 26 calls. The 23s were bought for $1.05 and the 26s were sold for $0.20. There was barely any previous positioning in either strike before the trade appeared.

Owning calls (learn more) locks in the price investors must pay to buy the shares, and selling calls fixes their maximum exit. They paid $0.85, and could potentially collect the $3 difference between the two strike prices. That's profit of 253 percent if the fund pushes back to $26.

The ETF closed at $22.40 yesterday, down 2.18 percent. It’s declined from over $42 a year ago, and has really been beaten down in a big way. Holdings include well-known producers like Consol Energy, Peabody Energy, and equipment maker Joy Global.

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Almost 3,300 contracts traded in the fund, versus fewer than 200 in a normal session. Calls outnumbered puts (learn more) by more than 200 to 1, so the sentiment was clearly bullish!

—By CNBC Contributor Pete Najarian

Additional News: Output Cuts Help Steady China’s Coal Prices, Outlook

Additional Views: Buy National Oil Varco: Jon Najarian

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Options Trading School:

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Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC’s “Fast Money” and co-founder of OptionMonster.com. Najarian has no position in KOL.

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Disclaimer

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