Options Trading News

June 5, 2012  Tue 3:24 AM CT

Arch Coal is at its lowest price in more than a decade, and traders remain bearish.

optionMONSTER's Depth Charge monitoring system detected the purchase of 9,000 June 7 puts for $1.07 and the sale of an equal number of June 8 puts for $1.97. Volume was below open interest in the June 8s, suggesting that an existing position was closed and rolled to the lower strike. There was also heavy selling in the June 7 calls for $0.15, but it's not clear whether positions were opened or closed.

The investor collected a credit of at least $0.90 and remains exposed to further downside in the St. Louis-based coal miner. In addition to recovering some cash, yesterday's adjustment more than doubled the gamma of the puts to 0.31 from 0.14. That effectively increases leverage in the event of a major drop in the next two weeks. (See our Education section)

ACI rose 0.8 percent to $6.28 yesterday. The stock has lost more than half its value so far this year as worries about the global economy wreak havoc on the entire industry.

Overall option volume was twice the average amount, according to the Depth Charge. Puts accounted for almost two-thirds of the total.
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The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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