Option Activity Alert: AMR, AIG, Casey’s General Stores

AMR – AMR Corp. – Options investors employed a number of bullish trading strategies on the parent company of American Airlines this morning after a JPMorgan Chase & Co. analyst named AMR Corp. his top pick among U.S. carriers. AMR’s shares increased as much as 6.75% today to touch a four-month high of $8.38. A number of optimistic individuals engaged in plain-vanilla call buying in order to position for continued near-term appreciation in the price of the underlying stock. Traders picked up approximately 5,100 now in-the-money calls at the November $8.0 strike for an average premium of $0.52 apiece. Call buyers at this strike make money if AMR’s shares trade above the average breakeven price of $8.52 by November expiration. Bullish sentiment spread to the higher November $9.0 strike where another 2,200 call options were purchased for an average premium of $0.12 a-pop. Options traders holding these contracts are poised to profit in the event that AMR Corp.’s shares surge 8.8% in the next few weeks to surpass the effective breakeven price of $9.12 by expiration day. Meanwhile, another bullish player sold roughly 10,000 puts at the December $7.0 strike to take in premium of $0.18 per contract. The put seller keeps the full premium received on the transaction as long as AMR’s shares exceed $7.00 through expiration day in December. The investor could wind up having approximately 1 million shares of the underlying put to him at an effective price of $6.82 each should the December $7.0 strike puts land in-the-money at expiration. Increased demand for options on AMR Corp. lifted the stock’s overall reading of options implied volatility 10.8% to 56.02% by 12:15 pm in New York trading.

CASY – Casey’s General Stores, Inc. – Shares of the Iowa-based operator of convenience stores in The Heartland fell as much as 7.7% at the start of the trading session to hit an intraday low of $38.25 after takeover talks between Casey’s and 7-Eleven Inc. fell apart when the two companies were unable to agree on a price. 7-Eleven, the biggest convenience store chain in the U.S., upped its offer to $43.00 a share in cash from $40.00, but Casey’s said the new offer does not reflect the value of the company or its potential for growth. CASY’s shares are currently down 4.2% to stand at $39.71 as of 11:20 am in New York. Casey’s General Stores popped up on our ‘hot by options volume’ market scanner this morning after one bearish player purchased a put spread in the November contract. It looks like the trader picked up 2,500 now in-the-money puts at the November $40 strike for a premium of $1.05 each, and sold the same number of puts at the lower November $37.5 strike at a premium of $0.10 apiece. The net cost of the transaction amounts to $0.95 per contract thus positioning the investor to make money should CASY’s shares slip beneath the effective breakeven price of $39.05 ahead of November expiration. Maximum potential profits of $1.55 per contract are available to the put spreader if shares fall 5.6% from the current price of $39.71 to trade below $37.50 by expiration day. CASY’s overall reading of options implied volatility jumped more than 28.5% to 24.59% in early morning trade, but is currently up a lesser 17.3% to arrive at 22.44% as of 11:30 am, now that the market has started to digest news of the failed takeover talks.

AIG – American International Group, Inc. – It looks like options players are initiating bullish bets on the insurer ahead of the firm’s third-quarter earnings report, which is scheduled for release before the market opens on Friday. AIG’s shares are currently up 2.8% at $43.30 just before 12:40 pm after earlier rising as much as 4.7% to reach an intraday high of $44.10. Near-term out-of-the-money call options are popular today, with the November $46 strike attracting the most volume by midday. Traders coveted roughly 1,000 calls at the November $44 strike for an average premium of $1.30 apiece, and picked up some 1,400 calls at the higher November $45 strike at an average premium of $0.89 a-pop. More than 5,490 calls changed hands at the November $46 strike and the majority of the contracts were purchased for an average premium of $0.59 each. Call buyers at this strike make money if AIG’s shares jump 7.6% over the current price of $43.30 to trade above the average breakeven point at $46.59 by November expiration day. The November $50 strike calls were also well trafficked and enticed bullish players to pick up some 2,300 lots at an average premium of $0.27 apiece. Options implied volatility on AIG is up 6.1% at 39.46% on increased demand for option contracts today and ahead of earnings. Investors have exchanged 48,900 options on American International Group, Inc. as of 12:45 pm in New York trading.

About Andrew Wilkinson 1023 Articles

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.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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