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Option Activity Alert: Speculation Rises on Alpha Natural Resources Ahead of Earnings

Traders are favoring calls over puts, but the mood isn't quite as bullish as it seems

by Elizabeth Harrow (eharrow@sir-inc.com) 10/30/2009 1:00 PM

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With the coal company's earnings report just around the corner, call volume surged yesterday on Alpha Natural Resources, Inc. (ANR: sentiment, chart, options). During the course of Thursday's session, traders on the International Securities Exchange (ISE) bought to open 2,034 calls on ANR, compared to just 74 puts. The stock's single-day call/put volume ratio arrived at 27.49, revealing a clear bias toward bullish bets over their bearish counterparts.

ANR SOIR Thursday's optimistically skewed activity was simply the extension of a recent trend for ANR. The equity boasts a 10-day ISE call/put volume ratio of 3.36, with calls bought to open more than tripling puts during the previous two weeks. This ratio ranks higher than 74.2% of comparable readings taken within the past year, indicating that calls have been purchased over puts at a faster pace just about one-quarter of the time.

ANR's Schaeffer's put/call open interest ratio (SOIR) also points to a complacent attitude among short-term speculators. The SOIR weighs in at 0.48, with calls more than doubling puts among options set to expire within three months. This reading ranks in the 45th annual percentile, suggesting that option traders are aligned on the modestly bullish side of neutral.

Focusing in on Thursday's option volume, most of the buy-to-open ISE call volume crossed the tape in a single large block. At 2:51 p.m., 2,000 contracts changed hands on ANR's January 2010 40 call at the ask price of $2.15. The equity was trading near $35 at the time of this trade, which suggests that the trader who initiated this long call position has high hopes for ANR to rally during the near term.

ANR open interest Meanwhile, among front-month options, the most popular strike is actually a put. The November 36 strike is home to peak front-month put open interest of 5,830 contracts, while the November 30 and 38 strikes each have excess of 4,200 puts in open interest. By comparison, the site of peak call open interest for the series is the 40 strike, with just 2,863 contracts outstanding.

So, despite the recent trend toward call buying, it seems that puts still dominate open interest in the November series by a wide margin. In fact, the most active option in today's session so far is the November 32 put, with 1,264 contracts crossing the tape on open interest of just 425. With volume outstripping open interest, it's safe to assume that new puts are being added here today.

In other words, the recent uptick in bullish option volume doesn't necessarily indicate high hopes for ANR's upcoming turn in the earnings spotlight. Indeed, short interest on the stock surged by 14.3% during the most recent reporting period, and now accounts for 6.5% of the shares' float. This unequivocally downbeat development reveals that some of those recently purchased calls might have actually been picked up as pre-earnings hedges by the bears.

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Option Activity Alert: Rising Bullish Speculation on Rosetta Resources Inc.

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Buy-to-open call volume has been steadily building on Rosetta Resources Inc. (ROSE: sentiment, chart, options). During the past 10 days, speculators on the International Securities Exchange (ISE) have bought to open 163.46 calls for every put on the equity, revealing a hefty skew toward bullish bets over their bearish counterparts. This ratio ranks higher than all other such readings taken during the past year, indicating that traders have attained an annual optimistic peak.

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Option Activity Alert: Speculation Rises on Alpha Natural Resources Ahead of Earnings

Traders are favoring calls over puts, but the mood isn't quite as bullish as it seems

by Elizabeth Harrow (eharrow@sir-inc.com) 10/30/2009 1:00 PM

ANR

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