Speculating On Coal Options

And Everything Else On My Options Watchlist

Today’s post will be a little bit different than the usual stock deep dive and will instead focus on call options that I recently bought, and a couple others that I’m watching closely. Most of these are focused on the coal sector, but I have a couple other options chains that I’m watching outside of the sector. These are smaller positions, but if you get it right with options, you can get a lot of bang for your buck. I want to make it perfectly clear to readers that call options are not suitable for everyone, but if you know what you are doing, you can make the occasional intelligent speculation.

I started looking into options chains across the sector after Alpha Metallurgical Resources’ AMR 0.00%↑ weak guidance caused a large drop in the stock last week (shares were down around 10% for the day), but they have since bounced and came in a bit to just over $225. They have had a couple issues that will negatively impact their results, but I still think the stock is undervalued. The other stocks also dropped a bit in sympathy, and I think Warrior Met Coal HCC 0.00%↑ in particular is looking very attractive again. From what I have seen, metallurgical coal pricing has remained firm in Q3, and I think we could see solid results from most of the met coal companies.

In other coal news, Whitehaven Coal announced a deal to acquire the Blackwater and Daunia mines from BHP BHP 0.00%↑ for $3.2B (up to $4.1B contingent on operating results) sending shares up more than 10% on Wednesday. The market obviously liked the acquisition. I haven’t pulled the trigger on buying Whitehaven shares after the massive pop on the acquisition news, but it is still on the watchlist for now. It’s been a long time since I have seen Zoolander, but any time the coal sector has a monster day (the stocks are very volatile and large single day moves all the time), you are bound to see the Zoolander coal miner GIF at least once on Coal Twitter (I saw one on Wednesday with the Whitehaven deal, so I had to show it to you).

There are three options chains that I have been focused on, and it’s not a coincidence that each chain is the longest dated options chain available for each stock. I don’t have an edge with shorter term options, and my past successes have always been with the long dated options. The most attractive options chain in my opinion are the January 16, 2026 calls for Peabody Energy BTU 0.00%↑.

Peabody Energy January 16, 2026 $35.00C

I’m always looking for mispriced assets, and like Peabody’s stock, I think the longest options chain is mispriced today. One of the main reasons that I actually bought these calls while the others remain on the watchlist is that they expire in 2026. That gives me two years and three months to either be right (and make a whole lot of money) or be wrong. I bought the $35 strike calls for $3.25 a piece, and if we get the share price performance that I’m expecting from Peabody over the next couple years, these options will be worth a lot more a couple years from now.

To lay out a hypothetical that could be possible (and something that I would be celebrating for sure), let’s say that Peabody’s stock doubles over the next two years, going from just over $25 today to $50. If you buy the stock, a double in two years is nothing to sneeze at. If you buy the calls, however, those will be up at least 5x (or more, depending on the time value left in the options). The company has just started its buyback program in the last couple quarters, and I’m expecting some catchup to other stocks in the coal sector over the next couple years. They still had $749M remaining on their $1B buyback program from their Q2 earnings date, and we should find out how much stock was repurchased next week with their Q3 earnings report on October 26th. My position in Peabody shares is much larger than my position in the call options, but I think that Peabody’s 2026 options could be a profitable speculation.

Warrior Met Coal December 20, 2024 $70.00C

Next up is Warrior Met Coal, another company that I own shares in. Shares have pulled back about 10% from recent highs above $52, and I have been looking to buy calls. Unfortunately, Warrior doesn’t have a longer dated options chain, but I think that with their undervaluation, these options are another speculation worth a closer look. Whether I buy them or not depends on what happens with the share price over the next couple weeks before earnings, but I’m hoping to buy these around $2.50 or $3.00. If I’m right about the direction that Warrior is headed over the next year and change, it could turn out to be a Christmas present for 2024.

Like I said earlier, met coal pricing has been robust in Q3, and I wouldn’t be surprised if we get a short term pop on Warrior’s Q3 earnings report, which is set for November 1st. I have seen people saying the Warrior should be above $60 with current coal pricing, but we will have to see how the next couple quarters turn out. I think that if management pays off the remaining debt and starts a buyback program, shares could surprise the market on the upside in 2024.

AMR January 17, 2025 $390.00C

I think AMR is undervalued, but I don’t know if the undervaluation is the same as Peabody or Warrior for example. Do I wish I had bought AMR over Peabody six months ago? Yes, but hindsight is 20/20. AMR has already bought back a ton of stock (close to 40% of shares outstanding), and while I think shares have more upside, I don’t think their longest dated options chain is as appealing as Peabody’s or Warrior’s. The large drop on weaker guidance last week got me interested, but I’m not ready to pull the trigger yet. I probably wouldn’t be a buyer of these calls unless AMR drops near $200. If I did buy these calls, it would be a smaller position than the Peabody or Warrior calls.

Honorable Mentions

While the main focus today was on the coal sector, I have a couple other options chains that I have been watching recently. The first is the Sprott Uranium Miners ETF URNM 0.00%↑, which is a sector I have been watching for awhile. I’m a bull on most commodities, and the Uranium sector has a very clear supply and demand mismatch that could set the ETF for an explosive move higher over the next couple years. The second is Transocean RIG 0.00%↑, which has some interesting 2026 call options, especially if shares go lower in the short term.

URNM January 16, 2026

The Uranium sector has been on a tear starting in August. The ETF has pulled back a bit from the high-$40s, but the volatility means that the options premiums are high. While I think the URNM ETF ultimately heads much higher, I don’t know if these options have the same upside as some of the coal options. I don’t have a specific strike price in mind for this one, but I wouldn’t pull the trigger unless we get a deeper pullback below $40. This would be a small position because I want to continue to add to coal and oil related stocks, but it’s definitely on the watchlist.

RIG January 16, 2026

Like the Uranium ETF, I don’t have a specific strike price in mind, but I would probably focus on the $10 or $15 strike. I have laid out the bull case for offshore several times, with several different stocks. I think Transocean will be a completely different company in a couple years, and the call options look like an intelligent speculation to me. This is probably the least likely addition for now. I have already purchased a couple batches of calls on Transocean when shares were lower than they are now. I will probably exercise the 2024 $5.00 calls at some point in the next couple months (which I will write about in the future), but I also own some 2025 $10.00 calls. I don’t think I will exercise the 2025 calls, but I’m going to wait and see and let those play out. If Transocean’s share price heads much lower, than I might consider adding some 2026 calls to my portfolio.

Conclusion

Options aren’t for everyone, and I only use them if I have a fundamental case that the underlying stock or ETF is very undervalued. With options, you have to get the direction right, but you also have a limited time, unlike buying a stock. If you do get both of those right, you can set yourself up for outsized returns. Again, I want to make it clear that options are a very small part of my portfolio, and the dominant part of my portfolio is spread across the stocks that I have discussed in the past. If you want to speculate from time to time, options can provide levered upside and a large potential reward on a relatively small initial investment. I prefer to look at the longest dated option chains, and I think there are several coal companies and other things that look like intelligent speculations today.

---

Disclaimer

I own shares of Peabody Energy, Warrior Met Coal, and Transocean. I also own calls on Peabody Energy and Transocean. You should do your own research before making any investment decisions. Different investment strategies have different risk/return profiles which should be considered before making any decisions.