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Options Radar: American Airlines Group and United Continental

Reviewing notable options activity on American Airlines Group Inc and United Continental Holdings Inc

by 7/8/2014 2:42 PM
Stocks quoted in this article:

In the wake of a downwardly revised forecast from Air France KLM, airline issues American Airlines Group Inc (NASDAQ:AAL) and United Continental Holdings Inc (NYSE:UAL) have emerged on the options radar. Here's a look at how today's option traders have been placing their bets on this duo.

  • American Airlines Group Inc (NASDAQ:AAL) is down 1.2% at $39.63. The company is tentatively scheduled to report earnings next week, and amid the sector-wide drama, AAL's short-term options are in demand. In fact, the equity's 30-day at-the-money (ATM) implied volatility (IV) hit a 52-week high earlier today, and was last seen 4.8% higher at 46.7%. Despite the stock's dip, calls are the options of choice, trading at three times the typical intraday pace. Digging deeper, it seems one speculator is exercising cautious optimism, constructing a bull call spread at the August 40 and 43 strikes. The trader is betting on AAL to topple $41 (bought strike plus net debit of $1), but the sold calls limit his profit potential to $2 (difference between strikes minus net debit), no matter how far the security should soar north of $43.

  • United Continental Holdings Inc (NYSE:UAL) is flying in the face of sector headwinds, up 1.4% at $39.14, as traders digest plans to outsource more than 630 U.S. airport jobs. Like AAL, UAL's 30-day ATM IV touched a 12-month peak earlier in the session, and was last seen 1.4% higher at 48%. It seems UAL, too, may have been targeted for a bullish option spread, this time at the September 44 and 50 calls. The spread was apparently opened for a net debit of $0.95 per pair of options -- which represents the maximum risk on the play, should UAL remain south of $44 through September options expiration. Breakeven stands at $44.95, and profit potential tops out at $5.05, should UAL conquer the mid-century mark -- a feat not accomplished since October 2007.

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