| On July 1st, I was reading headlines about how hot coal was in its securitized form. Then, the very next day, the flame was snuffed. So I wonder, can they keep coal kindled? Only time will tell if coal gets stoked, but some analysts are saying coal is set to burn for another few years, and that it will re-ignite like the trick candle on your birthday cake. I paraphrase. But some do say the recent correction is overdone. I say, "Who cares?" What I want to know is how to trade this situation. Below is one idea that I think warrants consideration. The idea consists of going long Arch Coal (symbol: ACI) using an at-the-money call option, and simultaneously going short KOL using an at-the-money put option. ACI is the largest holding in KOL; KOL is the Market Vectors Coal ETF. The thinking is that ACI should move faster than the KOL basket of stocks. If coal rebounds, the ACI call profits will hopefully outpace the KOL put losses. If, on the other hand, the coal fire gets completely doused, the KOL put should offer some meaningful protection against the ACI call losses. The worst case is if these issues don't make any move prior to the expiration date chosen by the trader. Note that if a nearer expiration is chosen, decay will be more detrimental to the position. If a more distant expiration is chosen, then implied volatility will be a greater factor that could work for, or against, the trade. Regardless of what the coal stocks do, may the embers in your barbecue burn hot 'til the burgers are perfect.
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Coal - Hot or Not? 
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