Unusual Action in Energy Triggers Takeover Chatter

Jon Najarian’s heat seeker has spotted unusual action in this energy name. What does the OptionMonster make of it?

Peabody Energy, a coal company, landed on the radar due to excessive call buying. “It averages 8,000 calls but it traded 50,000 yesterday and today it remains very active,” Najarian says.

The heaviest activity is at the April 34 strike, he adds. Despite gains of 5% in less than a week, the action suggests institutional investors are betting that the stock has more upside.

Although the catalyst is unknown, Najarian tells us market chatter suggests a very large investor may take a substantial stake in the company or might even make a bid for the entire company.

Trader Steve Grasso confirms that he too has heard the chatter. However, he thinks the trade is longAlpha Natural Resources. “The whole space is pretty much on its butt,” he says, “and people are bottom fishing,” he adds.

That is, pros are buying underperformers in anticipation of M&A activity. “Other names could be goosed dramatically by this,” he says.

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Trader disclosure: On Mar 16, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova is long VRTS; Terranova is long NXPI; Terranova is long IBM; Terranova is long MCD; Terranova is long EMC; Terranova is long MSFT; Terranova is long JOY; Terranova is long OXY; Terranova is long LQD; Terranova is long POT; Terranova is long TBT; Terranova is short GOOG; Terranova is short April gold futures; Terranova is short May silver futures; Grasso is long ANR; Grasso is long ASTM; Grasso is long AVAV; Grasso is long BA; Grasso is long D; Grasso is long FRO; Grasso is long MHY; Grasso is long NUAN; Grasso is long MO; Grasso is long PFE; Grasso is long PRST; Grasso is long S; Grasso is long XLU; Grasso is long ZAZA

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