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AOL, Inc. (AOL): Option Traders Eye a Move Into Uncharted Territory

AOL, Inc. call buyers see significant gains over the next several months

by 1/16/2014 10:37 AM
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Option Brief: AOL, Inc. (NYSE:AOL) calls were in high demand on Wednesday. By the time the dust settled, 8,524 calls had crossed the tape -- four times the expected daily volume, and more than five times the number of puts traded. The most active strike -- and the one that saw the largest rise in open interest overnight -- was the April 55 call. The majority of the 2,600 contracts exchanged at the strike did so on the ask side, and implied volatility jumped 2.6 percentage points, making it safe to assume that a fresh batch of bullish bets was initiated.

By purchasing the calls to open, the expectation is for AOL to topple the $55 mark by the close on Friday, April 18. This area resides about 10.2% above the equity's current perch at $49.92, as well as in territory yet to be charted by AOL. With short interest accounting for a lofty 6.7% of the stock's available float, a portion of yesterday's call buying at the deep out-of-the-money strike could be indicative of shorts hedging against extended gains.

In fact, reaching record-high peaks has become status quo for AOL, Inc. (NYSE:AOL) of late, and just this morning, the stock tagged the $50.33 mark for the first time ever. Today's surge in buying power follows news that AOL is relinquishing majority ownership of its local news network Patch prompted a round of bullish brokerage notes. Specifically, JMP Securities and Topeka Capital raised their respective price targets to $65 from $50 and to $57 from $50. Additionally, CRT Capital upped its outlook for the equity to "buy" from "fair value." At last check, AOL was up an impressive 5.6%.


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