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US Airways' Near-Term Calls Fly Off the Shelves

Speculators flock toward LCC's January calls

by 11/29/2012 2:12 PM
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US Airways Group, Inc. (NYSE:LCC - 12.86) has been on the bullish trading radar lately, according to data pulled from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, the equity's 10-day call/put volume ratio checks in at 4.20, indicating calls bought to open have more than quadrupled puts during the past two weeks. This ratio ranks higher than 71% of similar readings gathered during the last 12 months, with traders scooping up calls over puts at an accelerated clip.

It's no surprise that this penchant for calls over puts has carried over into today's session, particularly since the security's Schaeffer's Volatility Index (SVI) of 46% is just three percentage points above an annual low. In other words, LCC's short-term options are relatively cheap right now, providing a window of opportunity for traders wanting to bet on the stock to trek higher. As such, roughly 20,000 calls have been exchanged so far, which is nearly seven times the equity's anticipated intraday volume. By contrast, just over 2,400 puts have crossed the tape.

The clear favorite has been the January 2013 15 strike, where 10,800 calls have changed hands -- almost all of them at the ask price, hinting at buyer-driven activity. With today's volume exceeding current open interest levels -- along with the fact that implied volatility has climbed 2.7 percentage points during the course of the session -- it's very likely that fresh bullish bets are being placed here. Because these out-of-the-money contracts traded at a volume-weighted average price (VWAP) of $0.31, speculators are counting on the stock to power north of $15.31 -- a level not surmounted since February 2008 -- by January expiration.

However, it bears mentioning that short interest on the airliner rose by close to 3% during the most recent reporting period, and now represents a formidable 17% of LCC's float -- or the equivalent of four days' worth of pent-up buying pressure, at the stock's average pace of trading. This implies that some of the recent call buying could be the work of short sellers looking to hedge their bearish positions.

Meanwhile, sentiment among the brokerage bunch is decidedly bullish. LCC sports seven "strong buys" and one "buy" recommendation, versus two "holds" and zero "sell" suggestions. What's more, the stock's average 12-month price target sits at $16.42, representing a 27% premium to Wednesday's close of $12.97.

This optimism toward LCC is hardly surprising, as the security boasts a year-over-year gain of nearly 175%, as well as a year-to-date advance of more than 153%. On the charts, the stock is on pace to close November atop its 10-month moving average, which has acted as solid support for the duration of 2012. Today's bulls could end up reaping the benefits of an extended near-term climb, should the shares tack on an additional 19% from their current perch prior to Jan. 18.


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