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Thermal coal prices fall to a two-year low as surging exports from Indonesia, the world’s...
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Monday, June 11, 2012, 3:09 PM ETThermal coal prices fall to a two-year low as surging exports from Indonesia, the world’s largest coal producer, and the U.S. continue to overwhelm demand from Asia. The slide hits the share price of thermal coal miners (KOL -1.5%), with the valuation of some approaching their lowest in more a decade: ACI -2.1%, ANR -7.5%, BTU -4%, PCX -11.7%, JRCC -6.8%.
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- one has confidence in the company that they are selling puts on - meaning it is very unlikely that the co will go insolvent
- sell a small initial position - for example, if one has intention to establish a 2000 share position in BTU, initially sell 3 or 5 puts only and then watch the market and sector
- sell that initial position at strikes where one would not mind being assigned the shares - we all have seen countless articles and opinions on how BTU, ANR, ACI etc are great values at prices much higher than they are now - yet they continue to go down - bottom line is that no one really knows how low the coal stocks can go and how long they can stay there - therefore make sure your strategy accounts for that uncertainty
- follow the sector and individual coal stocks very closely and watch for the market to confirm a bottom and the start of a turnaround - once that moment arrives start deploying the rest of your capital in stages - there are lots of options here - one can continue selling puts but now at-the-money or even slightly ITM to take advantage of the upside. My favourite strategy though for that situation though when the coal sector starts turning around would be to start buying ATM LEAP calls to take full advantage of the upside - which very likely will sharp and violent.
At this particular moment though I don't see any significant catalyst to cause the coal prices to start turning around and take the related equities with them. But then what do I know .....
Maybe something will happen - very hot summer, bulish developments in China - who knows....
Therefore, my strategy has to account for that uncertainty and take into account the possibilities that the coal stocks can go even lower.
it's heck when you're reduced to hoping to avoid a loss as an investment strategy. i wish like heck i'd bought another 2k of Freeport McMoran and avoided the coal sector altogether.
my prediction is ANR at less than $6 a share by the end of the year. it's worse than bad. this, of course, is my own fault for thinking things had fallen to far that there would be stability at the $10 level. wrong!
If I made a play at all here it would probably be on BTU bonds.
A lot of the NG euphoria right now is because it is ridiculously cheap - and that will not last forever. It may not even last for more than a few years or months. Right now supply is much greater than demand, but as usage increases that curve will change.