EOT Trade Alert – June 12, 2008

June 12, 2008

Trade Alert:

    Buy ICO September 2008 $12.50 Calls at $1.30 or better (ICOIV) 

Brief Company Background:

International Coal (ICO) produces coal in Northern and Central Appalachia and the Illinois Basin.  The company has 13 active mining complexes, where they control one billion tons of high-quality coal reserves.  ICO coal reserves are primarily high-BTU, low-sulfur steam and metallurgical coal. 

Short-Term Catalyst:

Our last trade was based on the movement of coal prices.  We’re going to stick with the trend and capture a move in the coal producers.  I’m expecting coal prices to continue rising over the coming months.

A few things are impacting coal right now:

1) China is consuming more and more coal.  Traditionally a net exporter, their export levels are falling and some estimate they may start importing coal.

2) Power supply problems in South Africa are shutting down mining.  We noticed it in the gold and diamond markets.  Now it’s impacting coal.

3) Demand around the globe is increasing.  Energy producers in Europe and the United States are scrambling to lock up long term supply.

ICO recently announced the acquisition of Powell Mountain Mining operations.  This gives the company further access to proven reserves and a modern coal processing plant.  I’m expecting these additions to be very beneficial to the company.

The company should announce second quarter results in late July.  This will give the stock time to build going into earnings season.  

Trade Details:

Option Ticker Symbol:	ICOIV
Underlying Stock Symbol:	ICO
Current Bid-Ask Price:	$1.05-$1.10
Option “Buy Up To” Price:	$1.30
Break-Even On Stock At Expiration:	$13.80
Maximum Risk Per Contract:	$130

Exit Strategy:

ICO is trading at 11.27.  The stock is reaching new 52-week highs.  However, on a long term chart resistance is at 13 and again at 15.  Support levels are 9 and 7.50.

Chart:

Category: EOT Trade Alert