With the market being so volatile and with bearish tones ringing loud, entrance into regular call trades poses great risk. There have been some strong earnings announcements out by the coal companies that have already reported. These announcements tend to lead to a bullish bias in Coal, but the market has not been kind to anything energy related in the past month so we need to tread cautiously.
We set up a straddle on JRCC…The chart below is of JRCC and shows the 2 trading scenarios that we discussed and their costs. Remember that this is for learning purposes…my disclaimer. 
Notice the imbalance of call and put contracts. The reason for this imbalance is to make sure that we have similar amounts of monies in each leg of the trade. If we put more into the calls, we have a bullish bias and vice versa.
The total cost to get into the trades is shown below. The 1st trade cost $3665 to enter and is currently worth $4405. The second trade cost $5500 to enter and is currently worth $6100. These are gains of approximately $800 and $600 respectively. Now I realize that these amounts do not represent broker commissions.
So now what? I couldn’t argue with taking profits now. These are nice gains for a couple short trades. I am holding the trade and will continue to hold expecting the stock to move toward 30 which is the bottom of its lower trading channel. At that point, I will set a trailing stop on my puts and hold the calls. I will hold the calls because at that point they will be essentially worthless and any rally in the stock will add to our profits. Earnings are coming this Thursday and I may look to liquidate the entire trade if we haven’t reached $30 by then.
These straddles/strangles are fun trades that allow us to sleep at night. We are looking for big moves in the stock value. They require savvy trade management, but with practice, they can translate into nice profits in this volatile market.
Good Luck!
Jeff Yaede
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