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Coal remains an important supplier of the nation’s energy needs. One way to play stocks in the sector is through options trading strategies. Consider some of these trades when planning your second quarter investments.

Here are some ideas that should be major beneficiaries from any global reassessment of available near term energy supplies.

Peabody Energy Corp. (NYSE: BTU) 72.27. St. Louis based BTU has interests in 28 coal operations located in the United States and Australia. With both metallurgical and thermal coal, it is said to be expanding its Australian operations to meet growing Asian demand.

The current Historical Volatility is 37.60 with an Implied Volatility Index Mean of 35.50 for an IV/HV ratio of .94 and a bearish put-call ratio of 1.50. The options volume last Friday was 9,750 contracts with a 5-day average of 6,211. Here is a reasonably priced call spread with an added put sale to improve the options volatility edge and add delta.

For this one we have set the SU (stop/unwind) just over seven points lower at 65.

Alpha Natural Resources, Inc. (NYSE: ANR) 60.47. Alpha operates 61 mines primarily in the central Appalachian and northern Appalachian regions producing both low sulfur steam and metallurgical coal. Currently they are in an agreement to purchase Massey Energy Co. (NYSE: MEE) 69.26 by exchanging 1.025 shares of Alpha and $10 in cash for each share of MEE. The combined operation will own 110 mines with coal reserves of about 5bn tons and one of the largest metallurgical coal reserves.

The current Historical Volatility is 40.78 with an Implied Volatility Index Mean of 40.90 for an IV/HV ratio of 1.00 and a bullish .37 put-call ratio. The options volume last Friday was 14,952 contracts with a 5-day average of 9,470. Here is another reasonably priced call spread with an added near term put sale to add delta and time decay to the position.

Use a close back below resistance at 57.87 as the SU (stop/unwind).

International Coal Group, Inc. (NYSE: ICO) 11.23. Featured in Barron’s on February 28, they have 1.1bn tons of reserves producing coal in the northern and central Appalachian regions, of the United States from 13 mines. Now at 13% the more valuable metallurgical coal production is expected to increase to 22% in 2012.

The current Historical Volatility is 50.08 with an Implied Volatility Index Mean of 47.85, for an IV/HV ratio of .96 and a bullish .4 put-call ratio. The options volume last Friday was 8,529 contracts with a 5-day average of 7,250. Here is another call spread with a good risk to reward ratio.

Use a close below support at 10.50 as the SU (stop/unwind).

Takeover File

Finally, one more coal company that also has the look of a takeover candidate.

Patriot Coal Corporation (NYSE: PCX) 26.89. Also based in St. Louis producing both thermal coal for electric utilities, as well as metallurgical coal for steel mills and independent coke producers, it has 14 company-operated mines, contractor-operated mines, and coal preparation facilities located in West Virginia and Kentucky.

Last Friday, there were five call series with more than 2,000 contracts traded, as the total volume was 35,906 contracts compared to the 5-day average of 20,400 contracts. With Alpha’s planned acquisition of Massey as noted above, there could be speculation PCX is next.

The current Historical Volatility is 47.66 with an Implied Volatility Index Mean of 51.76, for an IV/HV ratio of 1.09 and a bullish .35 put-call ratio. Here is another call spread with a good risk to reward ratio and a put sale for some volatility edge and time decay.

Use a close below 22 as the SU (stop/unwind).

All of the suggestions above are based upon last Friday’s closing prices using the mid price between the bid and ask. On Tuesday, the option prices will be somewhat different due to the time decay over the weekend and any price change.

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