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Hawk’s Nest

Call Options Accumulating in Thermal Coal Leader

by | Sep 8, 2021

Peabody Energy (BTU) has been unusually strong and shares are now +675% YTD and shares trading up to $19 after clearing the $4 level in May. BTU’s IV30 is now 97% and has seen elevated call option activity the last seven sessions including some notable buys of January and April 2022 $25 calls this week while January $12 calls bought 4000X on 6/25 and 7/13 remain in open interest. The $2B company is a leading coal producer with 17 active coal mines in the US and Australia. Thermal Coal has seen intense competition from cleaner energy sources. B. Riley raised its target to $15 last week as the seaborne market is showing compelling supply/demand fundamentals and sees higher pricing ahead. BTU currently trades 5.5X EBITDA with growth of 120% seen in 2021 after a 70% decline in 2020. On its latest earnings call BTU noted that “U.S., thermal coal market indicators are favorable with increased electricity demand and high natural gas prices. Overall, electricity demand increased 4% over last year, positively impacted by weather and weak prior year comparatives due to COVID. Coal’s share of electricity generation increased to approximately 22% for the first half of 2021, and as a result, coal inventories have fallen by approximately 17 million tons.”