Virgin America Inc (VA) Buyout Rumors Send Option Prices Soaring

Call buyers have targeted Virgin America Inc (VA) amid continuing buyout buzz

by Kirra Fedyszyn

Published on Mar 29, 2016 at 10:42 AM
Updated on Jun 24, 2020 at 10:16 AM

Virgin America Inc (NASDAQ:VA) is up 1.5% at $38.25 today -- not far from December's 52-weekl high of $39.20 -- after Monday's late reports that both JetBlue Airways Corporation (NASDAQ:JBLU) and Alaska Air Group, Inc. (NYSE:ALK) have made offers to purchase the company. People familiar with the matter said a deal could be reached as soon as next week, but other suitors could still emerge, and VA has not definitely decided it will sell. Amid all the buyout rumors, call buyers have been turning up the heat in the options pits.

Since March 14, VA's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) has surged to 5.76 from 0.47, revealing a rapidly growing interest in bullish bets on the airline stock. The greatest increase to open interest during this period occurred at the April 30 call, which now carries 1,152 contracts in residence.

Today, VA options are crossing at three times the typical intraday clip, with puts outnumbering calls. But option buyers are paying up for steep volatility expectations on their new VA bets. The stock's 30-day at-the-money implied volatility has risen to 56% -- which ranks higher than 98% of the past year's worth of readings. That means the options market is pricing in relatively high short-term volatility expectations for Virgin America Inc (NASDAQ:VA).

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