Option Bulls Hone In On American Airlines Group Inc. (AAL)

American Airlines Group Inc (AAL) is down 13.3% since hitting a record high last month

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Published on Feb 3, 2015 at 9:09 AM
Updated on Apr 20, 2015 at 5:32 PM

American Airlines Group Inc (NASDAQ:AAL) struggled on Monday, as the price of crude continued to recover and winter storms kept many flights grounded. The stock's options pits were busy, as well -- especially on the call side, where volume doubled the daily norm.

Digging deeper, the two biggest blocks to cross were matching 10,000-contract lots of March 52.50 and 57.50 calls -- the former of which was bought to open, and the latter sold to close. In other words, it appears the strategist trimmed his expectations for AAL by moving his long position to a closer-to-the-money strike.

Meanwhile, a bull call spread was initiated at the May 60 and 70 calls, with 10,000 of the former bought to open, and 10,000 of the latter sold to open. This long call spread anticipates the shares -- which ended yesterday down 0.7% at $48.72 -- will rally north of $60 (and into record-high territory) by May options expiration. Breaking down the strategy further, by selling the higher-strike calls, the trader lowered his entry price -- but also capped his maximum potential gain -- should the underlying exceed $70 throughout the options' lifetime.

As alluded to, it's been a rough start to the year for American Airlines Group Inc (NASDAQ:AAL). In fact, since reaching a record high of $56.20 on Jan. 26, the shares have retreated 13.3%. Should this technical downtrend continue, AAL could be pressured by a round of downgrades, considering 11 of 12 covering analysts have handed out "buy" or better ratings.


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