Mid-day Flow Summary
AMERICAN AIRLINES (AMR)
American Airlines (AMR) options continue their recent run of unusually high volume today. AMR has an average daily volume of only 30,000 contracts. However, more than 45,000 contracts have already changed hands by noon today, with activity concentrated in the May 30 Calls. Yesterday saw 27,000 of these calls change hands, with two-sided order flow and net open interest growing by 8,406. Today’s volume of 14,000 May 30 Calls suggests there is additional interest in a potential recovery for the sector. With scattered takeover chatter reported, there might be a short term play on the name.
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APPLE COMPUTER (AAPL)
Apple Computer (AAPL) is also busy today, trading on the heels of better-than-expected earnings that boosted the stock above $100. More than 400,000 contracts have traded so far, on pace for twice the daily average. The majority of the flow is characterized by option sellers who are looking for a decrease in implied volatility. This is especially true in options expiring this June, where 95 strike Puts and 115 strike Calls saw aggressive multi-market sell orders for more than 5000 contracts each.
WENDY'S (WEN)
There has been interesting flow in Wendy’s (WEN) options recently. The stock is currently trading up 15% on deal-related comments coming out of the annual shareholder meeting. Options volume in WEN usually only totals about 1400 contracts. However, a curious strangle trade was executed yesterday on the ISE (with the stock near 32.15). The strangle buyer purchased 11,000 June 30 Puts and 11,000 June 35 Calls for a net price of $0.61. Both legs created new open interest and appear to be unrelated to any other positions. Given the current stock price of $38, the strangle is showing a bid of $3.20, giving yesterday’s buyer a paper gain of $2.85 million. Today’s activity is focused in the Dec - June 40 Call spread, which has traded 10,000 contracts so far. This type of calendar spread, particularly in a potential deal name, is popular with risk-arb traders looking to speculate on the structure and timing of the deal.
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About Henry Schwartz
Henry Schwartz has traded derivatives on US and European exchanges for nearly 20 years. His experience includes market-making and institutional trading at the Hull Group, Salomon Brothers, Bear Stearns and most recently Banc of America Securities, where he led the electronic market-making project coincident with the launch of the ISE. His current work involves real-time stream analysis of options market activity for a number of leading institutional sell-side firms.
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