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June-Dated Put Activity Soars on Outperforming US Airways Group

Bearish traders disregard LCC's technical prowess

by 5/16/2012 11:04 AM
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Bearish bettors ambushed US Airways Group, Inc. (LCC - 11.55) yesterday, as roughly 16,000 puts changed hands, which was five times above the norm. Most popular was the out-of-the-money June 10 strike, where close to 10,200 of these puts were traded -- almost all of them at the ask price, reflecting buyer-driven activity. This strike saw an overnight rise in open interest of 9,688 contracts, making it safe to say that most of the volume consisted of newly opened positions. This option now holds peak put open interest of 13,317 contracts. In order for speculators to make a profit from these bought-to-open puts, the stock must retreat below $10 by back-month expiration.

The airliner is certainly no stranger to bearish speculation. The stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio sits at 0.55, which ranks in the 76th percentile of its annual range. In other words, traders have been picking up puts over calls at an accelerated clip. In a similarly pessimistic vein, short interest on LCC spiked by more than 15% during the past two reporting periods, and now accounts for a lofty 12% of the equity's available float.

On the technical front, however, LCC boasts a year-to-date gain of almost 128%, and has outpaced the broader S&P 500 Index (SPX) by more than 53% during the past 40 days. A look at the charts shows that the stock continues to trade above its ascending 10-day moving average, which has acted as support since mid-March.

At last check, LCC is up about 3.8% to flirt with territory not explored since early 2008.


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