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US Airways' Technical Prowess Doesn't Faze Put Players

Most of LCC's volume crossed in the form of a bear put spread

by 3/23/2012 10:04 AM
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US Airways Group, Inc. (LCC - 7.40) was hit with a barrage of put activity on Thursday, as roughly 22,000 of these options crossed the tape, which was eight times the norm. Data from revealed that most of the volume was the work of one speculator, who sold to close a block of 10,000 puts at the out-of-the-money April 6 strike. He then sold to open another block of 5,000 puts at the April 7 strike, while simultaneously buying an equal number of puts at the April 8 strike -- thus establishing a bear put spread on LCC.

In this strategy, the trader is betting that the stock will finish at or below $7 by the time front-month options expire. Should this occur, his maximum profit is limited to $0.53 per pair of puts -- or the difference between the strike prices, minus the net debit of $0.47. On the other hand, his potential risk is limited to the net debit paid.

This bearish skew toward the airline issue is nothing new. The 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio for LCC checks in at 1.64, confirming that puts bought to open have comfortably outnumbered calls during the past two weeks. In fact, this ratio is just six percentage points shy of a yearly acme, which means that traders have been snapping up bearish bets over bullish at an almost annual-high pace.

However, LCC has been a technical standout lately, having gained more than 47% year-to-date, and besting the broader S&P 500 Index (SPX) by over 22% during the past 60 sessions. On the charts, the stock is trading above its 50-week moving average, which has served as support since late January.

In the opening hour of the session, the equity is ahead by about 1% to trade at $7.40, after CEO Doug Parker reassured investors that the company can stand on its own two feet, regardless if it merges with a larger rival airline.


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