WLT - Energy for the New Year?

setups, Watch List

WLT, Walter Energy, has been on my watch list for about a year now.  It’s technical chart shows a steadily rising 30 day MA, with a small pullback last week.   Then it continued to climb and just closed above it’s 7 day MA.   I like the look of the chart, so it’s time to check the fundamentals and see what the experts say.

Company Profile: Walter Energy Inc (WLT)

Company Description: PRODUCES HARD COKING COAL AND STEAM COAL FROM UNDERGROUND MINES FOR USE BY THE STEEL AND UTILITY INDUSTRIES.

Investools basically gives this company and it’s industry group the thumbs up.  If I had a little more time to research, this might even be a good buy & hold stock.  The financials are sound and the industry group (COAL) is solidly held by the big investors rating  a 99% this week.

Investors Business Daily gives it a smart select rating of 99, EPS rating of 98, and RS rating 95.  The group rating gets an A+.  Other leaders in its industry group include  AHGP, ARLP, ICO and BTU…all companies worthy of further research for purchasing of equity or options.

this looks like a solid BUY to me, so let’s check the options available:

Underlying Price: $130.27
Support: $120
Risk:  $10 on underlying

March 135 Call
Price $7.45
Delta: .46
Option Risk (Risk * Delta) = $4.60
% Account Value 14%

March 140 Call
Price $5.60
Delta: .38
Option Risk (Risk * Delta) = $3.80
% Account Value 11%

Both of these are high risk trades due to the small size of my account.  If we go out one further, let’s see how the risk improves:

March 145 Call
Price $4.15
Delta: .30
Option Risk (Risk * Delta) = $3.00
% Account Value 9%

That at least brings the risk down below 10%. Keep in mind that I would likely sell before hitting that price, but I want to keep my maximum risk in mind.

I ended up putting in a bid for 100 shares of the March 145 call option at $4.10. I’m willing to pay an extra $5.00 (.05 x 100 shares) to have a better chance of getting the option when the market opens. Ideally I’d wait till after market open and see what direction we’re going, but I’ have to work at 6am, so I’ll miss out. I’ll check back in after 9AM and see how its going.

Suzanne @ February 1, 2011