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Option Bulls Pile On as American Express Hits a Multi-Year High

AXP's February 62.50 call is popular in today's session

by 1/11/2013 1:58 PM
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Calls are the preferred options on American Express Company (NYSE:AXP - 61.05) in today's session, with the bullishly skewed bets trading at more than six times their average intraday pace. By the numbers, around 19,000 call contracts have changed hands so far, compared to approximately 11,000 puts. Optimistic traders are turning their attention to the back-month series of options by scooping up AXP's February 62.50 calls. A healthy portion of the roughly 1,900 contracts traded here have crossed at the ask price, and volume is outstripping open interest, pointing to buy-to-open activity.

With these out-of-the-money calls being purchased for a volume-weighted average price (VWAP) of $0.90, traders will begin to accrue a profit with each step north of $63.40 (the strike price plus the VWAP) AXP takes through the close on Feb. 15, when the options expire. This breakeven mark represents a 3.8% premium to the equity's current perch.

Today's rush toward calls diverges from the recent trend witnessed in AXP's options pits. During the course of the past 10 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more than two puts for every call on AXP. Plus, this put/call volume ratio of 2.01 ranks higher than 88% of other such readings taken in the last year, suggesting a healthier-than-usual appetite for bearish bets over bullish of late.

This bearishly skewed bias is echoed in the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.70. Not only does this show that put open interest nearly doubles call open interest among options with a shelf-life of three months or less, but it ranks in the 96th percentile of its annual range. In other words, short-term speculators have been more put-heavy toward the equity just 4% of the time within the last year.

Technically, AXP has had an impressive run on the charts, with the stock adding nearly 23% over the past 52 weeks. This impressive price action has been highlighted by the equity's 60-week moving average, which has ushered the security higher since December 2011. In fact, a recent bounce off this supportive trendline helped send AXP to a five-year high of $61.97 in today's session. In light of this technical tenacity, the withstanding trend toward puts in the options pits could simply represent shareholders protecting profits against a potential pullback.

On the fundamental front, the credit card concern is making headlines today after disclosing plans to lay off approximately 5,400 employees by the end of the year. Additionally, AXP is slated to reveal its fourth-quarter results after the market closes next Thursday. Wall Street is calling for results of $1.06 per share, but today's announcement included revelations of a $400-million restructuring charge for AXP's fourth quarter.


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