Bet on Alpha Natural’s Heater

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Most of us have been hurt in some shape or form by this economy during the past several years. Whether it has been going out to dinner less, cutting back on purchases or losing equity in your home, we’ve all felt it. Businesses have felt it too, and some industries were hit harder than others. But just like some people, many are slowly starting to make a comeback.

Here is a potential trade idea on one of those companies that might be in the early stages of recovery:

Alpha Natural Resources (ANR – $8.55): Long Calls

The trade: Buy the December 9 calls for $1.15 or less.

The strategy: Buying a call is an option strategy that can take advantage of a bullish outlook on a stock. A long call can profit if the stock rises and the call premium increases to an amount more than was paid. Maximum profit is essentially unlimited with a long call because the stock can continue to rise, and the maximum loss is $1.15 — or whatever was paid — if ANR finishes below $9 at December expiration. Breakeven is at $10.15 at expiration based on a cost of $1.15.

The rationale: Alpha Natural Resources (NYSE:ANR) is one of America’s leading producers of coal. Coal has been bad business now for quite some time. Demand and prices have taken a beating since the beginning of 2011, but just recently, it has been predicted that prices for coal will improve for at least the next two years. The Fed’s stimulus measures and a decrease in production, combined with a forecast for a cold winter, might be just enough to move a coal producer like ANR from its all-time lows.

Alpha Natural has gained about 60% since the beginning of September, but it still has plenty of room to rise this fall. The stock has an area of resistance right below $10 (previous pivot high), then another area of resistance right around $12. No one is saying ANR might be trading at $20 a share where it started the year; then again, no one says it can’t, either!

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2012/09/bet-on-alpha-naturals-heater/.

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