Does panic mark capitulation in L&L?


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L&L Energy may have turned after a wave of panic yesterday.

LLEN fell as low as $2.15, its worst price since the shares began trading in early 2010. L&L is a coal company that is legally based in Seattle but operates in China.

Yesterday's option activity surged at the same time that investors braced for a potential collapse. More than 3,400 February 2 puts traded, most of which were bought for $0.10 to $0.15. Volume was more than twice open interest in the strike.

Those contracts expire today, so the activity reflected very near-term fears. Some investors, however, took the other side of the trade by selling puts for $0.05 and $0.10. They will keep those premiums if LLEN closes above $2 today.

The shares rebounded from those lows and ended yesterday's session down 3.73 percent to $2.32. They trade for about half of book value, which could potentially attract bargain hunters.

Yesterday's rebound came amid heavy volume and occurred very close to the $2.18 level where LLEN bounced in October. Some traders may interpret that price action as capitulation selling and now look for the stock to rebound.

Overall option volume in the name was 29 times greater than average, with puts outnumbering calls by 4 to 1.

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

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