Traders think the bottom is finally in place for coal miner Walter Energy.
optionMONSTER's Heat Seeker monitoring system detected the purchase of some 5,000 August 12 calls for $1.17 and the sale of an equal number of August 8 puts for $0.60. Volume was more than 18 times the previous open interest at each strike, indicating that new positions were initiated.
Owning calls locks in the price where shares can be purchased, while selling puts obligates the investor to buy them at lower prices if WLT craters. Combining the two methods is similar to owning the stock, but at a much lower cost--in this case, $0.57.
The position will expire worthless if the stock remains between $8 and $12 in the next seven weeks. It's probably intended to give the investor a cheap way to profit from a sharp rebound while programming a buy order at a much lower price. (See our Education section for more on how options can be used to manage trades.)
WLT is up 0.38 percent to $10.44 in morning trading. The stock has lost more than 90 percent of its value in the last two years and is now attempting to bounce at its lowest price since late 2004.
Short interest represents about one-third of the float and the shares trade at about two-thirds of book value, which could also draw buyers.
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