IB Options Brief: Alcoa, Inc. (AA) & American Eagle Outfitters, Inc. (AEO)
AA ñ Alcoa, Inc.
Heavy volume in near-term put options on the aluminum manufacturer caught our eye this morning. It looks like options traders may be speculating on a near-term pull back in the price of the underlying shares, although the stock is currently up 0.20% to stand at $17.19 just before 11:30am in New York. Alcoaís shares have rallied substantially in 2011, extending gains realized during a strong 6-month uptrend. The aluminum makerís shares, at their current price, are up around 73.3% since August 25, 2010, when the stock traded as low as $9.92.
More than 32,000 puts changed hands at the February $16 strike on sizable, albeit smaller, open interest of 22,028 contracts. Nearly all of the put options appear to have been purchased for an average premium of $0.06 a-pop. Put buyers are perhaps positioning to turn a profit on the rise in premium that would likely accompany any sufficient decrease in the value of Alcoaís shares ahead of February expiration. The value of the puts will climb substantially in the event of a significant pullback in the aluminum producerís shares by next Friday, and investors securing the contracts for around $0.06 apiece today could benefit handsomely from such circumstances.
AEO ñ American Eagle Outfitters, Inc.
Renewed speculation and chatter regarding private equity interest in American Eagle sent shares and options implied volatility on the stock higher, and spurred a flurry of call activity in the name this morning. Shares in AEO rallied as much as 11.2% in the first half of the trading session to secure an intraday high of $16.34. In- and out-of-the-money call options are a-buzz with buyers positioning for the price of the underlying stock to extend gains in the near term.
More than 10,600 now in-the-money calls changed hands at the February $15.5 strike on sizable open interest of 19,780 contracts. Trading in these contracts is mixed, but it does appear there are more buyers than sellers this morning. Bullish call buying is the dominant theme up at the February $17 strike where more than 3,700 contracts were picked up for an average premium of $0.19 apiece. Investors long the calls are poised to profit should shares in AEO rally another 5.2% over todayís high of $16.34 to surpass the average breakeven point at $17.19 ahead of expiration next week.
Similar buying patterns were observed in March $16 and $17 strike call options, as well. Rumors, speculation, and the rise in demand for call options in the name helped lift the stockís overall reading of options implied volatility 31.1% to 56.35% by 12:05pm.
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About Andrew Wilkinson
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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