Two Ways to Trade Puts on Peabody Energy Corporation (BTU)

Peabody Energy Corporation tagged a fresh 10-year low earlier

Dec 4, 2014 at 2:39 PM
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Short-term Peabody Energy Corporation (NYSE:BTU) option traders have shown a preference for puts over calls, as evidenced by the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.82, which ranks in the 75th annual percentile. However, this measures both buy- and sell-to-open activity, and according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), BTU traders have been doing a mix of both. Specifically, over the past 20 sessions, speculators on this trio of exchanges have sold to open 1.52 puts for each one they've purchased.

It's a similar set-up in today's session, with both short and long positions being initiated at the equity's January 2015 8-strike put -- BTU's most active option. By selling to open the puts, speculators expect the $8 level to serve as a foothold through the close on Friday, Jan. 16 -- when back-month options expire -- allowing them to pocket the initial credit collected as their full potential reward.

Conversely, those buying to open the puts are betting on BTU to be sitting below this mark at expiration. More specifically, the traders' profit will accrue on a move south of breakeven at $7.64 (strike less the volume-weighted average price of $0.36), territory not charted since November 2003. Delta on the put is docked at negative 0.26, suggesting a 1-in-4 shot of an in-the-money finish at expiration.

Multi-year lows are not out of the question for Peabody Energy Corporation (NYSE:BTU), though, which tumbled to a fresh 10-year bottom of $8.73 earlier. At last check, though, the equity was down 2.1% at $8.99 -- extending its year-to-date deficit to 54% -- as a large sale of Natural Resource Partners LP (NYSE:NRP) shares sparks a sector-wide selloff.


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