Options Trading News

December 31, 2012  Mon 12:21 PM CT

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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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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