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Thumbs-up from Romney sparks bullish activity in Arch Coal calls

Arch Coal Inc (NYSE:ACI) – Shares in Arch Coal, Inc., which traded down to their lowest levels of the past decade during the month of July, caught a bid on Thursday, energized by positive comments from Republican presidential candidate Mitt Romney during the presidential debate last night. Romney’s comments and the subsequent 8% rally in ACI shares to an intraday high of $6.72 this morning, stoked bullish activity in options on the coal producer as well. Options traders positioning for shares in Arch Coal to extend gains purchased around 5,000 calls at the Nov. $7.0 strike for an average premium of $0.43 apiece. Call buyers profit at expiration next month as long as shares in Arch Coal rally more than 10% to surpass the average breakeven price of $7.43. Bullish activity spread to the higher Nov. $8.0 strike where options players snapped up around 1,000 contracts at an average premium of $0.21 each. Traders long the $8.0 strike calls make money if shares in the coal company surge 22% over Thursday’s high of $6.72 to exceed $8.21 by November expiration. Current volume in Arch Coal options, topping 20,000 contracts as of 12:40 p.m. ET, is more than twice the stock’s average daily volume of 8,849 contracts. Call options comprise most of the volume, with around three calls changing hands on the stock for each single put option in play so far in the session.

Netflix, Inc. (NASDAQ:NFLX) – Short term bullish bets initiated on Netflix earlier this week have paid off for some options traders, with shares in the provider of online streaming video services soaring more than 20% since Monday morning on positive comments from T2’s Whitney Tilson and other analysts. Trading traffic in upside call options that have one full trading session remaining until expiration indicate some strategists are positioning for shares in NFLX to extend gains into the weekend. Shares in Netflix tacked on 6.6% this morning to touch $66.75, the highest price since July 25th. Volume in weekly calls is heaviest at the Oct. 05 ’12 $70 strike where upwards of 8,300 contracts changed hands in the first half of the trading day. Traders appear to have purchased most of the calls for an average premium of $0.25 apiece, and may profit at expiration in the event of a more than 5% rally in the share price to $70.25. Further upside in the shares in the back-half of Thursday’s session or a strong open for NFLX shares tomorrow may present opportunities for call buyers to take profits off the table ahead of expiration even if the stock fails to rise above the average breakeven point. Alternatively, traders holding the contracts into expiration may lose the premium paid for the options should the price of the underlying settle below $70.00.

Caitlin Duffy
Equity Options Analyst

The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

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