Wednesday, April 22, 2009

Alpha Natural Resources Option Volume Surges

Not that we head much weight into buyout rumors. They do peak our interests when its followed by options volume. Somebody is 'betting' that the rumor has some validity. Alpha Natural Resources (ANR) is a metallurgical coal play or basically a play on China demanding steel as this type of coal is used in production of steel. It has been one of our favorite picks since it bottomed out in the $15s from a high of $120. Anybody buying them now would likely get a huge steal if steel demand comes back strong.

Details on the rumor from OptionSizzle. We think this stock has huge upside so we're not in favor of a buyout at these levels, but if a China firm wants to offer a huge premium we could definitely redeploy the capital in another stock.

  • Appalachian coal supplier Alpha Natural (ANR) is seeing an unusual spike in call options traded. Shares are higher by 4.5% at $18.09 on an increase of average stock volume traded. Just yesterday UBS lowered estimates on the coal sector citing reduced coal volume forecasts but, call options are seeing interest on chatter that China Shenhua Energy Company, which is the second largest coal mining enterprise is interested in making a bid for the company.
  • According to our Option Sonar, call options volume is 9 times the expected to trade with 18,000 calls vs 1,200 puts traded. Seeing the most interest is the May 22.50 call strike where 9,000 calls have traded exceeding the current open interest of 950. We see that only 51% of the calls traded so far have taken place on the offer and that implied volatility is at 94 but, below the 6 month average of 109, telling us that there is not much conviction to this rumor.
  • (ANR) been in a tight range from $13.15 to $24.20. Currently the 50 SMA is flat not indicating a dirction for shares to go and likley continue in that channel.

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