I opened a three part position in thermal coal recently.

music selection:  “Mindtraveler” — Falconer

The thermal coal space is pretty beaten up.  Low natural gas prices have cut into demand and a lot of miners have gone bankrupt.  There are a few low cost operators however that have remained profitable.  Importantly, they operate as MLPs and are obligated to pay out cash flow to shareholders.  I wanted to spread my risk here so instead of one position about 10k in size, I went with three around 3,300 each.  Just a little diversification for peace of mind.

First is CNX Coal Resources LP (CNXC).  This one is a micro-cap and has no options available so I bought the shares directly.  I snagged 358 shares for 9.76 each.  The 2.05 annual distribution thus yields 23.81% against my cost basis.  The company has a reasonably strong balance sheet and solid cash flows despite depressed prices for thermal coal.  I think I will do well here.

The second position I entered was Alliance Holdings GP (AHGP).  This one yields about 12 percent but I went with an options play and sold AHGP160617P00017500 for 1.05 a share.  The trade will be in force for 52 days and yields an astounding 42.12% annualized.  The trade also enjoys 11.61% downside protection.  I’ll be glad to be assigned and start writing covered calls against the position while collecting 12% in distributions.  Not bad for a company that is still turning a respectable profit in a down market.

The final position I entered was Alliance Resource Partners LP (ARLP).  This one yields about 11 percent but it also has options available.  I sold ARLP160617P00015000 for 1.20 a share.  The trade will be in force for 52 days and does even better than Alliance at 56.15% annualized with 11.99% downside protection.  Like Alliance, I decided to go at the money instead of gain extra downside protection around 12% yield because I’m keen to get assigned and start writing covered calls while collecting distributions.   ARLP also has maintained profitability in a difficult pricing environment and looks like another survivor.

Devour your prey raptors!

High yields in thermal coal

Never miss another opportunity to devour prey!

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