How the bulls are playing Arch Coal


Arch Coal has gotten hammered, but traders are hoping for a bounce by the autumn.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 10,000 October 5.50 calls for $0.18 and $0.19. Volume was more than 6 times existing open interest at the strike, which indicates that new positions were initiated.

Long calls lock in the price where investors can buy a stock, letting them control a move higher without locking up large amounts of capital. The low cost also provides an opportunity to create significant leverage if they get the direction right. (See our Education section)

ACI is down 2.38 percent to $4.11 in afternoon trading. Hurt by weak demand, the coal miner fell to a 13-year low around $4 last summer and has been languishing there since. It tried to rally two months ago, only to get driven lower by a weak earnings report on April 22. Now it's trying to hold $4 again.

Morgan Stanley analyst Evan Kurtz was bullish on the stock earlier this week, predicting a rebound after recent cold weather depleted coal stockpiles.

Total option volume is twice the daily average so far today, according to the Heat Seeker. Calls outnumber puts by more than 6 to 1.

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