Coal Firm Sees Upside Options on Potential Takeovers

Arch Coal drew upside call action yesterday as the industry continued to receive news ranging from potential takeovers to heightened demand.

The option activity was dominated by a single trade of 7,000 April 25 calls bought for $1.15, according to OptionMonster's proprietary tracking systems. The transaction was more than twice the open interest of 3,042 contracts and dwarfed the average volume of just 164 calls per day at that strike.

The coal producer closed yesterday up 1 percent to $24.56, having run up about 20 percent in less than two weeks. It spiked to a new 52-week high over $28 early this year but gapped down at the end of January after its last earnings report.

Shares of various companies in the space were unusually active Friday on reports that a Japanese steelmaker is paying higher-than-expected prices for coal. Earlier in the week coal names rose on speculation that Massey Energy was targeting Patriot Coal as a potential acquisition, and the sector got another boost yesterday on the $3 billion offer for coal seam gas supplier Arrow Energy.

Arch Coal's stock would need to rise roughly 6.5 percent by expiration in mid-April for the calls purchased yesterday to turn a profit. CEO Steven Leer said on CNBC's "Fast Money" last night that the company would release its next earnings report in April but did not specify a date..

Overall calls in the name at all strikes outnumbered puts by nearly 13 to 1.


Arch Coal Competes With:


Massey Energy

Peabody Energy

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Mike Yamamoto is an analyst and writer for OptionMonster.