The Market Vectors Coal ETF (NYSE: KOL) seeks to replicate as closely as possible the price and yield performance of the Stowe Coal Index. KOL is a non-diversified fund that normally invests at least 80% of its total assets in equity securities of U.S. and foreign companies principally engaged in the coal industry.

Options trading investors looking for an alternative energy investment may want to consider this coal exchange-traded fund. The global demand for coal is increasing as countries seek alternative energy sources to oil. There has also been a rise in merger activity and speculation in coal miners and producers recently, with Alpha Natural Resources (NYSE: ANR) taking over Massey Energy (NYSE: MEE). As more consolidation takes place in the “rare earth” category of assets, coal has also caught a bid.

By investing in the KOL, an investor can gain exposure to energy and foreign assets.

KOL Options Trade — Buy-Write, or Covered Call

Based on Tuesday’s close of $49.40 KOL was trading near its 52-week high of $51.87.

We would suggest a covered-call strategy. The investor could purchase KOL shares at $49.40, then write, or sell, the KOL July 52 Call and receive $1.40.

The breakeven for the shares would be $48.00 ($49.40 – $1.40). Any price lower than $48 and the losses start.

The maximum loss is the $48 net we paid out to buy the stock and collect the call premium.

The maximum gain is the strike price of 52, plus $1.40 in premium, or $53.40.

Therefore, $53.40 – $49.40 (price we paid for the stock) = $4.00 per share gain.

These prices are based on Tuesday’s closing prices. Check the option chains for the latest prices.

Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.