Options Intelligence Report: AMR Corp. (AMR), American International Group, Inc. (AIG) & Citigroup, Inc. (C)
Covered-Call Sellers Make Note Of Exits On American Airlines Parent Corp.
AMR ñ AMR Corp.
Bullish investors engaged in covered-call selling on AMR Corporation this afternoon after its subsidiary, American Airlines, revealed February passenger unit revenue increased between 6.5% to 7.5% as compared to roughly the same time a year ago. The so-called buy-write strategy took off amid an 11% rally in the price of the underlying stock to $9.93.
Options traders sold approximately 16,300 calls at the March $11 strike for an average premium of $0.09 apiece, and simultaneously purchased an equivalent number of AMR-shares when the stock was trading at approximately $9.84 each. The net price paid per AMR-share amounts to $9.75 apiece because of the $0.09 per contract financing provided by the sale of the call options.
Investors utilizing the buy-write strategy are positioned to accumulate maximum potential gains of 12.82% if shares rally through $11.00 by expiration day. The covered-calls provide an effective exit strategy for investors, who walk away with 12.82% profits if AMR shares rally to $11.00, and if the underlying shares are called from them at expiration.
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AIG ñ American International Group, Inc.
Insurance firm, American International Group, already reported plans to sell two units for $51 billion, but speculation that it may sell additional assets sparked rampant options trading activity on the stock this afternoon. Shares surged more than 18% to $34.34 at times during afternoon trading. Options investors exchanged more than 224,000 contacts on AIG as of 2:30 pm (ET), and traded more than two call options on the stock for each single put option in play. Two-way trading traffic in out-of-the-money call options is evident, but it looks like ñ in most cases ñ more calls are being purchased than sold.
The nearest-to-the-money March $35 strike had more than 37,000 calls trade today versus that strikeís previous existing open interest of just 12,297 contracts. More than 12,300 calls were purchased for an average premium of $0.89 apiece. The higher March $40 strike had 12,900 calls picked up by bullish individuals who paid an average $0.25 premium per contract. Finally, the March $45 strike attracted buying interest in the amount of 3,200 calls for an average premium of $0.18 each. More than 7,000 contracts changed hands at the March $45 strike, which trumps existing open interest of just 2,489 lots.
It is likely that a large portion of todayís trading activity is the work of intraday movers who do not plan on maintaining positions overnight. Options traders may be taking advantage of the 35.3% increase in overall options implied volatility on the stock to 80.49% this afternoon. It will be interesting to observe how overall open interest on the insurer changes tomorrow to reflect the ratio of intraday contracts traded as compared to new positioning on the stock.
C ñ Citigroup, Inc.
Options traders are concentrating on Citigroup call options this afternoon with total volume traded in the session edging up over 1.374 million contracts. Shares of the underlying stock are up 7.58% to $3.83, the highest traded price since December 2009. The bullish shift in the price per Citi-share inspired investors to trade more than 5 call options for each single put option in play thus far in the trading day.
The most heavily trafficked areas are in call contracts at the March $4.0 and April $4.0 strike prices. Notable buying activity took place at the April $4.0 strike where at least 168,000 contracts were purchased for an average premium of $0.10 apiece out of the total volume at that strike of 257,822 contracts. The higher April $5 strike, which houses existing open interest of just 2,541 contracts, attracted volume of more than 35,000 calls during the session. It looks like more than 27,300 of those calls were purchased by traders for an average premium of $0.02 apiece. Finally, as of 3:00 pm (ET), investors exchanged more than 284,000 calls at the near-term March $4 strike where a minimum of 176,700 of those contracts were purchased for an average premium of $0.04 each.
The surge in demand for options on Citigroup bumped up the reading of overall options implied volatility by approximately 16.2% to 48.59%. A large portion of todayís trading volume on Citigroup could be the work of traders making intraday moves to turn a quick profit. We will need to wait to see how overall open interest changes overnight in order to assess how much of todayís volume represents new positioning.
Note: The material presented in this commentary is provided forinformational purposes only and is based upon information that isconsidered to be reliable. However, neither Interactive Brokers LLC norits affiliates warrant its completeness, accuracy or adequacy and itshould not be relied upon as such. Neither IB nor its affiliates areresponsible for any errors or omissions or for results obtained fromthe use of this information. Past performance is not necessarilyindicative of future results.
This material is not intended as an offer or solicitation for thepurchase or sale of any security or other financial instrument.Securities or other financial instruments mentioned in this materialare not suitable for all investors. Any opinions expressed herein aregiven in good faith, are subject to change without notice, and are onlycorrect as of the stated date of their issue. The information containedherein does not constitute advice on the tax consequences of making anyparticular investment decision. This material does not take intoaccount your particular investment objectives, financial situations orneeds and is not intended as a recommendation to you of any particularsecurities, financial instruments or strategies. Before investing, youshould consider whether it is suitable for your particularcircumstances and, as necessary, seek professional advice.
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