There was another takeover announcement after the close in the coal sector.

Massey Energy (MEE) reported after the close it was going to buy privately held Cumberland Resources for $960 million. Unfortunately they also warned that Q1 earnings were going to be less than expected because of adverse weather conditions. I guess it really snowed deep in those coal mines. (grin) It is amazing how the weather is blamed for everything whenever there is a material event.

Regardless of whether the weather had any impact on Massey the fact remains that coal stocks are hot. Cliff's Natural Resources rallied another $3 today after Deutsche Bank reiterated a buy and raised the price target to $85. Cliff's is a steel company but has some coal operations at the core of its business representing 15-20% of its revenues.

To take advantage of this coal frenzy I am going to add an inexpensive coal play tonight.

No stops have been changed.

Jim Brown



Current Portfolio



Current Positions


FDX - FedEx
Put in a bid to buy back the option at 10-cents or less.
Maintain stop loss at $84.75.

TM - Toyota
Put in a bid to buy back the option at 10-cents or less.
Maintain stop loss at $72.75.


New Recommendations


BTU - Peabody Energy Corp

Company Description:
Peabody Energy Corporation (Peabody) is a coal company. The Company owns majority interests in 28 coal-mining operations located in the United States and Australia. In addition to its mining operations, it markets, brokers and trades coal. The Company operates in four principal segments: its three mining segments and its Trading and Brokerage segment.

Coal stocks dove on Monday after the Consol Energy (CNX) announcement it was buying natural gas assets from Dominion (D). This was seen by some as the obituary for the coal sector. That is far from the truth but simply a diversification play by Consol. BTU and the other coal stocks dropped on the announcement but rebounded strongly today.

BTU closed at $49 and I am recommending the April $45 put.

ENTER TRADE ONLY IF BTU OPENS POSITIVE AND HOLDS GAINS

SELL APRIL $45 PUT (BTU-10P4500) currently .86, stop BTU @ $47.25

Chart of BTU


Margin Requirements:

There are several different formulas for determining margin requirements for naked put writing. These are normally broker specific and some can require larger margin requirements than others.

Here is the most common margin calculation for naked puts.

100% of the option premium + ((20% of the Underlying Market Value) - (OTM Value))

For simplicity of calculation simply use 20% of the underlying stock price and you will always be safe. ($25 stock * 20% = $5 margin)