Options in coal and natural gas company Consol Energy (CNX) showed heavy activity late Friday afternoon as the S&P 500 refused to give up its gains for the week.
It seems like no matter what data rears its ugly head, this market won’t be pushed down. The bears just can’t take the S&P below the crucial 1,400 level.
This theory was tested by at least one trader on Friday afternoon in CNX.
As CNX traded down 0.75% to $31.95 a share, our detection grid showed a single block trade of 3,000 put contracts.
The interesting thing was that all 3,000 put options were sold… not bought. This trader was clearly making a long-term bullish bet that Consol Energy is pretty much done dropping for the rest of the year.
Our tracking system picked up his trade of 3,000 CNX January $29 strike puts at an average price of a whopping $2.48 per share. That’s a total premium collected of $744,000.
Now, all that needs to occur is for Consol Energy to stay above $29 a share by January expiration, and to the bank this trader goes.
So, let’s take a closer look at CNX…
Consol Energy produces coal and natural gas.
Consol’s coal mines are mostly located in the Northern and Central Appalachia, the Illinois Basin, and Utah. And their natural gas wells are also spread across a wide swath of Appalachia.
In 2011, CNX mined about 63 million tons of coal and pumped about 153 billion cubic feet of natural gas.
So why does this trader believe the stock is done falling?
First off, coal demand in Asia is outstripping supply. This means Consol Energy is able to sell coal into these markets at very attractive margins.
In addition, CNX has built a good acreage position in the Marcellus shale. The company owns much of this acreage in fee, so they pay no royalties.
And that’s not all…
CNX’s superb mines in Northern Appalachia are very efficient and would be quite difficult to replicate. This is great for CNX. You see, northern Appalachia coal is close to both domestic and export markets and is of a very high quality.
All of this gives CNX a very competitive advantage over its peers.
Lastly, Consol’s strong cash flows and healthy balance sheet will enable it to fund its natural gas drilling programs moving forward. In fact, most funding will come from internally generated cash.
CNX looks strong right now, and it seems that option traders believe it will remain strong right through the end of the year.
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Category: Unusual Options Trading Activity
About the Author (Author Profile)
Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.