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Bulls Swarm US Airways (LCC) Despite Serious Headwinds

LCC March 14 call sees 25,000 contracts traded

by 2/27/2013 2:23 PM
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Even as shares of US Airways Group, Inc. (NYSE:LCC - 13.22) continue a weeks-long post-earnings slide today, optimistic call traders are coming out in droves for the parent of US Airways. Calls are trading at nearly twice their normal volume, with more than 48,000 contracts crossing, as compared with a mere 1,000-plus puts. Of most interest -- the March 14 call -- which has seen nearly 25,000 contracts change hands. Also notable is the March 15 call, where more than 20,000 calls have traded.

Data from Trade-Alert suggests the bulk of this volume consists of one trader selling to close the March 15 calls in favor of the March 14 calls. A 20,000-contract block of the higher-strike options traded off the bid price of $0.06 per share, at the same time 19,884 March 14 calls traded off the ask price of $0.25 per contract.

With the 14 strike now in focus, LCC shares need to close at $14.25 (strike price plus premium paid) at March expiration for the trades to begin making a profit. If LCC doesn't climb the requisite 5.9% from its current levels to overcome the 14 strike, all the traders would lose is the premium paid.

That might be a bit of a stretch, given LCC's very recent performance on the charts. (In fact, the option's delta of 0.32 reflects a roughly 1-in-3 chance the option expires in the money.) After hitting an annual high of $15.64 on Jan. 23, the stock is off 15.5%, and is now trading below former support at its 50-day moving average. The recent swoon also has put the stock at a losing position for the year, and LCC is down nearly 4 percentage points as compared with the S&P 500 Index (SPX) over the last three months. Adding to the uncertainty is the airline's intention to merge with AMR Corp. (PINK: AAMRQ), the parent of American Airlines, which is in Chapter 11 bankruptcy protection. The boards of both companies have agreed to pursue the deal worth about $11 billion in stock, but the merger faces opponents in Congress and could face regulatory scrutiny as well.

Overall, option traders appear to be fairly bullish on LCC. The equity's 50-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 2.46, meaning that nearly 2.5 calls are being bought to open for every put. In addition, that stat ranks in the top 25% of similar readings in the last year, indicating the bullish attitude is even more prevalent lately.


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