Tuesday, September 20, 2011

Trying to "Thread the Needle" on ANR again.

Last Friday, two previously discussed option positions on Alpha Natural Resources ANR ($26 short puts and $34 covered calls) expired worthless.  That means CCI successfully "threaded the needle" between these two strike prices.  OK... so maybe "threading the needle" is a bit of an exaggeration given those positions represented a $8 (approx. 26%)  wide gap.  However,  high volatility on this stock's options meant that those two mutually exclusive trades both were positive, yielded 4% and 3% respectively. 

Of course, CCI still sits on lot of shares of the stock, with a  cost basis just under $40, that is deep underwater.   Hopefully, there is still  some base under the stock.  Additionally,  implied volatility/price of options is still quite high.  Hence CCI is  thinking of trying to "thread the needle" again with two similar option plays in October.  As a first step in that process,  one lots worth of Oct $26 puts were sold late Monday for $1.35 (5.2% premium).  Rationale for this trade (and another similar option trade on BAC) is contained at this article  at seeking alpha.   If ANR were to rebound, CCI would look to reestablish a covered call position against the already owned lot of shares.

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