Peabody Energy 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 yesterday 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 $0.43, 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 yesterday's trade, that spread is $3—a potential profit of almost 600 percent based on the entry price.