Stocks quoted in this article:
The shares of JetBlue Airways Corporation (NASDAQ:JBLU - 5.30) are in the red this morning -- likely to the dismay of Friday's options crowd. Heading into the weekend, the airline issue saw roughly 17,000 calls cross the tape -- about 26 times its average single-session call volume, and about 34 times the number of JBLU puts exchanged.
Most active were the 6-strike calls, where close to 9,900 contracts traded in the December series, about 4,200 contracts changed hands in the January series, and another 2,150 contracts crossed in the March series. Open interest skyrocketed at all three strikes over the weekend, and the majority of the calls traded at the ask price, pointing to buy-to-open activity.
By purchasing the calls to open, the buyers are expecting JBLU to surmount the $6 level within the options' respective lifetimes. The volume-weighted average price (VWAP) of the December 6 calls was $0.10, meaning the buyers will profit if JBLU retakes the $6.10 level (strike plus VWAP) within the next few weeks. Meanwhile, thanks to their added time value, the January- and March-dated calls traded for a VWAP of $0.15 and $0.20, respectively. As such, the January 6 call buyers will reap a reward if JBLU topples $6.15 within the next couple of months, while the March 6 call buyers will break even if JBLU conquers the $6.20 level by options expiration.
Even before Friday, however, JBLU's options crowd was upping the bullish ante. The stock sports a 10-day call/put volume ratio of 30.74 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), meaning traders bought to open almost 31 calls for every put during the past couple of weeks. What's more, this ratio registers in the 78th percentile of its annual range, suggesting option buyers are hungrier-than-usual for JBLU calls.
As alluded to earlier, though, the shares of JBLU have retreated in early trading. After the close on Friday, the company said cancelled flights and a dip in short-term demand due to Hurricane Sandy will have a "material" impact on current-quarter earnings, but didn't offer any financial specifics. At last check, JBLU has given up 0.6% to flirt with the $5.30 level.
As for the $6 level, the shares of JBLU haven't conquered this region since mid-February. What's more, short interest accounts for 16.3% of JBLU's total available float, representing 11 sessions' worth of pent-up buying demand, at the equity's average pace of trading. Against this backdrop, it's possible that short sellers bought the aforementioned 6-strike calls to hedge their bearish bets in the event of an intermediate-term rally.