Peabody Energy Corporation (BTU) Draws a Crowd from Call Buyers

Options volume is soaring on Peabody Energy Corporation (NYSE:BTU), with calls outpacing puts

by Karee Venema

Published on Mar 9, 2016 at 12:56 PM
Updated on Jun 24, 2020 at 10:16 AM

Peabody Energy Corporation (NYSE:BTU) is buzzing today -- and was halted earlier as a result -- and with 9.6 million shares traded, volume is nearing peak levels. This action is being echoed in the options pits, where overall volume is running at four times the average intraday rate. Calls are the options of choice, however, outpacing puts by a more than 2-to-1 margin.

Drilling down, BTU's January 2018 series is hot, and it looks as if speculative players are purchasing new positions at the 5- and 8-strike calls. If this is the case, the goal is for BTU to settle above $5 and $8, respectively, at January 2018 options expiration. Should the LEAPS expire out of the money, though, the most the call buyers stand to lose is the initial premium paid.

Widening the sentiment scope reveals options traders have preferred long calls over puts in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, BTU's 50-day call/put volume ratio of 6.53 rests higher than 85% of all comparable readings taken in the past year.

This call-skewed backdrop is echoed in the stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 0.15. What this indicates is that near-the-money call open interest outweighs put open interest in the monthly March-dated series of options by a more than 5-to-1 ratio.

Looking elsewhere, there may be an ulterior motive from this seemingly bullish bunch. Specifically, 43.5% of BTU's float is sold short, meaning short sellers may be buying to open calls -- particularly at out-of-the-money strikes -- to hedge their bearish bets.

Regardless, those purchasing the stock's near-term options are willing to pay up for elevated volatility expectations. In fact, BTU's Schaeffer's Volatility Index (SVI) of 1,060% sits at an annual high. What's more, the stock's 30-day at-the-money implied volatility of 271.1% is a 52-week peak.

On the charts, Peabody Energy Corporation (NYSE:BTU) has been a long-term laggard. Although the shares are up 30.5% today at $5.92 -- perhaps amid a round of short covering -- they remain 93% lower year-over-year.

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