Peabody was drawing bearish options activity ahead of its earnings report before the bell this morning.
Peabody finished the regular session up 3.51 percent to $43.37 yesterday and crept 0.44 percent higher in after-hours action. The coal company's shares have often seen choppy trading since recovering from its 52-week low of $16 back in November 2008, but they have spiked more than 25 percent this month—perhaps leading some traders to believe that this last leg up has run out of steam.
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Trading yesterday was concentrated on the November 40 puts, where 5,419 contracts changed hands at more than three times the previous open interest, indicating that these were newly opened positions. The average volume of calls at that strike has been just 130 each day for the last month.
OptionMonster's proprietary systemsshow that the puts traded in a strong buying pattern, most of them bought at the asking price for $1.10 to $1.20. For these options to turn a profit, Peabody's stock will need to drop more than 10 percent by the time the contracts expire on Nov. 20.
Peabody also saw put buying at the November 43 strike and call selling at the November 45 contracts, further reinforcing the negative sentiment among option traders yesterday.
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Jon 'DRJ' Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.com.