A reader called me to say I made a mistake in Friday's post. I had said that the volatilities on BTU were elevated because there weren't enough shares to short. So I wrote calls on BTU against my long bond position.
This was wrong. Only the puts have elevated volatility. The call volatility, at about 230%, is actually right in line with the 25-day historical vol. If you can find shares to short, there's a nice conversion arbitrage.
Even with this, I still like the overall position. If the bonds are worth almost nothing, the stock should be worth absolutely nothing.