AMR – AMR Corp. – Shares of the owner of the second-largest U.S. airline rallied as much as 6.8% this morning on speculation that Emirates, which is the biggest airline by international traffic, could be interested in purchasing a stake in AMR Corp. The rumors have since been dispelled by the Dubai-based company after Emirates’ President, Tim Clark, stated the firm “certainly wouldn’t be doing that” in reference to the takeover chatter. AMR’s shares have since retained a 3.65% rally on the day to trade at $6.26 as of 12:50 pm ET. Earlier in the session it seems the unconfirmed takeover speculation and the shift higher in the price of the underlying stock inspired frenzied call buying on the operator of American Airlines in the September and October contracts. Traders bought approximately 9,100 calls at the September $7.0 strike for an average premium of $0.12 apiece. More than 15,400 calls changed hands at the September $7.0 strike by 1:00 pm ET. Call buyers are positioned to make money as long as AMR’s shares rally above the average breakeven price of $7.12 by expiration day next month. Bulls also looked to the higher October $8.0 strike to purchase roughly 1,100 calls for an average premium of $0.10 a-pop. AMR’s shares would need to jump 29.4% over the current price of $6.26 in order for October $8.0 strike call buyers to start to make money above the average breakeven price of $8.10 by expiration day. Although the takeover rumors were denied by Emirates earlier today, options implied volatility on AMR Corp. is still up 14.4% at 61.89% as of 12:55 pm ET.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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