EOT Trade Alert – June 3, 2008

June 3, 2008

Trade Alert:

    Buy AHGP October 2008 $30 Calls at $2.70 or better (AQPJF) 

Brief Company Background:

Alliance Holdings (AHGP) produces and sells coal to utilities and industrial users throughout the United States.  The company offers coal in a variety of sulfur and heat contents.  Alliance operates eight coal mining complexes. 

Short-Term Catalyst:

Oil and natural gas prices are higher and everyone knows it.  Coal prices are higher too.  A lot higher.

In the last 6 months coal prices have almost doubled.

Most of the coal produced goes to fueling electricity production.  Everything else goes into producing steel.  Demand for coal is increasing steadily.  China and India are in the process of opening hundreds of coal fired power plants in the next decade.

Speaking of demand, reports that China will start importing coal soon have helped support the idea of high coal prices.

Alliance reported strong earnings for the last quarter of $23 million.

Their next earnings announcement should be in late July.  Leading up to this announcement, I’m expecting the share price to increase.  The company should be able to generate higher earnings this quarter.  They are working to increase production and are able to charge more for their coal. 

Trade Details:

Option Ticker Symbol:	AQPJF
Underlying Stock Symbol:	AHGP
Current Bid-Ask Price:	$1.80-$2.35
Option “Buy Up To” Price:	$2.70
Break-Even On Stock At Expiration:	$32.70
Maximum Risk Per Contract:	$270

Exit Strategy:

AHGP is trading at 29.16.  We really only have one resistance level to deal with, 32.25.  After that we’ll be at new highs.  So the psychological $35 level will act as a second resistance level.  Support levels are 26 and 25. 

Chart:

Category: EOT Trade Alert