Are Peabody Energy Corporation (BTU) Call Buyers Truly Bullish?

Peabody Energy Corporation (BTU) traders are buying March and April calls

Mar 24, 2015 at 2:27 PM
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Peabody Energy Corporation (NYSE:BTU) is about 0.2% higher to hit $6.39 this afternoon, despite some wobbly price action in the broader equities market as traders react to rising consumer prices and impressive new homes sales data. Year-to-date, however, the equity is down roughly 17.4%. Despite this negative price action, call activity in the options pits has been ramping up, with some speculators apparently gambling on last-minute upside for BTU.

Calls have been exchanging hands at 12 times the average rate today, and are outpacing puts by a nearly 9-to-1 ratio. Possible buy-to-open activity has been detected at the weekly 3/27 6.50-strike call and April 7 call, which are today's two most active contracts by far. By purchasing these calls, traders expect the security to muscle north of the strike price by their respective expiration dates.

Today's activity runs opposite to recent sentiment in the options pits, as BTU's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 6.57 is the highest such reading taken over the past year. Furthermore, the security's Schaeffer's put/call open interest ratio (SOIR) of 2.56 also sits in the 100th percentile of its annual range, showing that speculators have never been more put-skewed over the past 12 months.

Outside the options pits, short interest has increased by 8.3% over the past two reporting periods, and now accounts for roughly 23.5% of BTU's available float. Furthermore, it would take speculators nearly eight sessions to cover their bets, at average trading volumes. Given the large amount of short interest on Peabody Energy Corporation (NYSE:BTU), today's spate of call activity could be the result of short sellers hedging their bearish bets on the equity, particularly in light of the stock's bigger-picture technical troubles.

Daily Chart of BTU Since September 2014
 

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