Peabody Energy Corporation (BTU) Bear Bets On Even More Downside

Peabody Energy Corporation (NYSE:BTU) has had a horrendous year, and it looks like at least one trader isn't expecting things to get better

by Josh Selway

Published on Jul 2, 2015 at 10:55 AM
Updated on Jun 24, 2020 at 10:16 AM

It's been a downright ugly year for coal concern Peabody Energy Corporation (NYSE:BTU). All-in-all, the shares are down over 89% in the past year, and widening the technical scope shows that the stock has been in a consistent downtrend since April 2011. Judging by recent option activity, it seems as though some are anticipating even further moves to the downside.

Overall, BTU put volume ran at five times expected volumes yesterday. Looking at data from Trade-Alert, it looks like one trader rolled down her bearish bet. Specifically, it appears she sold to close 20,440 January 2016 2-strike puts for 75 cents apiece, and then bought to open 32,704 January 2016 1.50-strike puts for 44 cents apiece. Simply stated, this trader is expecting BTU to slide below $1.50 by January 2016 options expiration.

Looking back, it's actually been call buying that's been popular among the equity's option traders. During the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), BTU has posted a call/put volume ratio of 3.59 -- higher than four-fifths of readings from the past year.

But pump the brakes. There's a good chance some of this activity is the work of short sellers hedging their bearish bets against any upside. In fact, close to one-third of the stock's float is controlled by short sellers, accounting for nearly a week's worth of trading, at normal daily volumes.

Even with Peabody Energy Corporation's (NYSE:BTU) miserable performance on the charts, six brokerage firms have maintained "buy" or better opinions. Even more startlingly, the shares' average 12-month price target stands at $6.85 --  almost four times BTU's current price of $1.77. It wouldn't be the least bit surprising to see a round of bearish notes hurt the stock in the near future. And wouldn't you know it, Deutsche Bank just this morning lowered BTU's rating to "sell" from "hold,"  and its price target to $1.30 from $6 -- as the firm also did to a number of commodities stocks.


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