Put Buyers Reign in Walter Energy (WLT)—But Why?

08/31/2009 10:42 am EST


Nick Perry

Equity Options Trader, Schaeffer's Investment Research

Walter Energy, Inc. (WLT) found itself in the crosshairs of put buyers on Thursday. During the course of the session, traders on the International Securities Exchange (ISE) bought to open 3,097 puts on WLT, compared to just 389 calls.

WLT price chartThe day's most active strike was the October 40 put, where 7,550 contracts traded on open interest of just 50 contracts. About 92% of this volume changed hands at the ask price, which points to buying activity, and implied volatility surged 8.3% as a result.

On Friday, open interest at this strike arrived at 7,586, confirming that traders were adding new bearish bets here on Thursday. The October 40 put continues to draw attention in today's session, with 2,574 contracts crossing the tape so far. Nearly all of this volume traded at the ask price, indicating that speculators are increasingly betting on a move below $40 from WLT during the near term.

Taking a look at the equity's price action, WLT seems an unlikely candidate for such heavy-handed pessimism. The shares are trading near $55, and they've enjoyed the unwavering support of their ten- and 20-day moving averages since late June.

However, in light of the stock's impressive 215.5% gain in 2009, it's possible that WLT's investors are simply buying these puts as "plunge protection" in order to ensure they can hang onto at least a portion of their profits.

By Nick Perry of Schaeffer's Trading Floor Blog

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