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December 31, 2012  Mon 12:21 PM CT

WLT: SEE CHART GET CHAIN FIND STRATEGIES
Walter Energy has been bottoming out since the summer, and the bulls want to ride the coal miner higher.

optionMONSTER's Heat Seeker tracking program detected the purchase of 3,400 January 32.50 calls for $3.30. Volume is almost triple previous open interest at the strike.

Those investors now have the right to buy WLT shares for $32.50 on expiration, no matter how high they may go. They will generate significant leverage to the stock price itself but will lose value quickly if it moves the wrong way. (See our Education section)

WLT rose 4.85 percent to $35.46 in afternoon trading. The stock's price was cut in half after starting the year around $60 and has been fluctuating between $30 and $40 since July. During that time other material and coal stocks have also bottomed, and now the economic data from China appears to be improving. That could be leading some investors to expect a rebound.

Total option volume in the stock is twice the daily average so far today, according to Heat Seeker. Calls account for almost four-fifths of the activity.
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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