Energy remains hot. Which is to say, oil is hot! Driven by supply disruptions or demand metrics from emerging markets. Take your choice!

What we have not heard much about is coal. Which in this space is surprising. What with coal being one of the most widely used sources of energy in the world. The US alone produced 1.15 billion tons of the stuff in 2007, firing up everything from steel mills to electrical power generators.

Demand for coal is rising as the US attempts to limit its exposure to foreign energy sources. Coal is plentiful and available domestically. In many parts of Canada and the US, you can pick the stuff up off the ground with your bare hands.

Yet despite almost unlimited supplies, the market for coal remains tight. Mainly because there are a host of impediments preventing new supply from getting to market. Impediments include the ever-present environmental lobby, the high cost of opening new mines, and capacity constraints at operating mines.

Mix rising demand with rigid supply and you have a potent cocktail. As in a domestically produced energy source that has tripled in value over the past year. A trend that will likely continue.

If so, then options provide speculators with a way to lever the coal price trend. Or, for cash flow seeking investors, a put writing strategy with decent premiums and an underlying bullish bias.

Consider for example, Fording Canadian Coal Trust (TSX: FDG, recent price $94.04). According to the company report, Fording is an open ended mutual fund trust that directly and indirectly owns all of the interests of Fording Limited Partnership (Fording LP), which holds a 60% interest in Elk Valley Coal Partnership (Eky Valley Coal). The stock has just established a new 52 week high, and over the past year, has paid out $10 in distributions.

Aggressive traders could buy the FDG August 96 calls listed on the MX. FDG is an interlisted company, so you could also use US-based options, such as the FDG August 95 calls at US $6.30. In either case, these are short term speculative trades, where your objective should be to move in and out quickly based on continued upward pressure on oil.

More conservative cash flow oriented investors might look at writing the October 94 puts at $9.00 or better. Or if you prefer the US market, write the September 90 puts at $7.00.

With the sale of the put, you are obligated to buy 100 shares (per option sold), of FDG at either $94 CDN (i.e. write the October 94 puts in Canada) or US $90 per share, if you write the US September 90 puts.

You net cost of acquisition is $85 on the October option ($94 strike price less $9.00 premium = $85). On the US put sale, your net acquisition cost is US $83 per share (US $90 strike less US $7.00 in premium = US $83 per share).