Thursday, July 14, 2011

Trading ANR Again

In the recent past, CCI successfully traded coal stock ANR.  The core of the rational for putting some money in this stock has been that
  • coal seems like a resource that will continue to be a critical
  • ANR might have been overly punished by noise and uncertainty from its acquisition of  Massey
  • with a forward P/E of single digits (now near 7) it is  not overly expensive.  
Earlier this week, for better or worse,  Crammer talked up ANR. It got a short term bounce and pulled back a little today.
 Crammer calls ANR "top dog" in coal space.

Today CCI decided to re-initiate a trade in ANR.  Wiht ANR trading around $44.35 sold one lot of Aug $41 puts for $1.11 net of commissions.   Implied vol remains high at around 45 at the time of the trade. A catalyst in the form of a earnings call is schedule for Aug 3. A few scenarios

Worse case - the stock falls over $3 (about 8%) and CCI will be long a lot at an effective price of around $40.  In this case, volatility will even likely be higher and we would likely sell calls against the position to try to recover any losses.

Best case - Stock stays above $41 and the portfolio makes 2.5+% in option premium over 5 weeks.

Most likely case - Any positive drift in the stock going into earnings provides the opportunity to scalp a smaller profits in a shorter period of time.

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