Bull digging into James River Coal

By David Russell,

Shutterstock photo

James River Coal has gone nowhere since the 2008 financial panic, and but one trader is looking for a pop as earnings approach.

optionMONSTER's Heat Seeker tracking system detected the purchase of 2,500 May 17.50 calls for $0.80 and the sale of an equal number of May 17.50 puts for $1.05, resulting in a net credit of $0.25.

JRCC Chart JRCC is flat on the day at $17.11, essentially having moved sideways since November 2008 . That represents a major underperformance compared with the Market Vectors Coal ( KOL ) exchange-traded fund, which tracks the broader sector and has more than doubled over the same period.

Today's options trade, known as a synthetic long or bullish risk reversal, will mimic owning the shares outright. The investor will earn leveraged returns if JRCC rallies above $17.50 by expiration and lose money if it closes below $17.25.

The company reported an unexpected loss on Feb. 26 and issued a weak forecast for the year because of production difficulties. The next earnings release is scheduled for Friday morning.

Short interest represented a considerable 23 percent of the float as of April 15, so some traders may be looking for a potential squeeze higher.

The transaction pushed overall options volume in JRCC to four times greater than average so far today.

(Chart courtesy of tradeMONSTER)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: JRCC , KOL

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