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Most Active Options Update: US Airways Group Inc (NYSE:LCC)

Are LCC shareholders picking up protective puts?

by 11/15/2013 3:05 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Three names of notable interest this afternoon are US Airways Group Inc (NYSE:LCC), JPMorgan Chase & Co. (NYSE:JPM), and AT&T Inc. (NYSE:T).

One JPMorgan Chase & Co. shareholder appears to have initiated a collar using January 2014 calls and puts. Meanwhile, yesterday Moody's cut its debt ratings for four of the largest U.S. banks, including JPMorgan. Moody's also weighed in on AT&T Inc. this morning, assigning its new shares with an A3 rating. In the stock's options pits, one speculator may be using split-strike December calls and puts to simulate a stock purchase. Elsewhere, here's a closer look at why traders may be targeting US Airways Group Inc puts, despite the equity's impressive technical showing.

Most

US Airways Group Inc (NYSE:LCC) put volume has soared to three times its average intraday pace today, despite the stock trading higher. The most sought-after position is the April 2014 20-strike put, which has seen 5,760 contracts change hands -- all at the ask price. Only 87 contracts make up open interest here, indicating the initiation of a new batch of bearish bets.

The volume-weighted average price (VWAP) for the out-of-the-money puts is $1.65, meaning traders expect LCC to fall south of $18.35 (strike less the VWAP) between now and the close on April 18. This breakeven mark sits almost 23% below the stock's current price at $23.77. Meanwhile, delta for the put is perched at negative 0.25, or 25%, suggesting a 1-in-4 chance the option will expire in the money.

On the charts, LCC has tacked on almost 76% year-to-date. In light of this, a portion of today's activity at this out-of-the-money strike could represent shareholders hedging against longer-term headwinds. In the near term, however, the equity could struggle against the $24 area -- at least for the remainder of today's session. Peak call open interest in the quickly expiring front-month series rests at the overhead November 24 strike. This could translate into a layer of options-related resistance as the contracts that reside here are unwound ahead of the closing bell.

Off the charts, once LCC is able to proceed with its merger with AMR Corp.'s American Airlines, the combined company -- American Airlines Group Inc. -- will trade on the Nasdaq under the ticker AAL. A judge is slated to rule on AMR's Chapter 11 bankruptcy in late November, and the merger is expected to be completed sometime in December.


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