Options Trading News

October 4, 2012  Thu 2:45 AM CT

U.S. Airways jolted higher yesterday, but one investor remains worried.

optionMONSTER's Depth Charge monitoring system detected the purchase of 10,000 October 11 puts for $0.29 and the sale of an equal number of October 10 puts for $0.10. Volume was below open interest at the 10s, so there are two possible explanations for the activity.

One is that both sides of the trade were opened, in which case it was a bearish put spread. That would have cost $0.19 and have a maximum profit of 426 percent if the airline stock closes at or below $10 on expiration.

The more likely possibility is that the trader owns LCC shares and previously held the 10 puts as a hedge. Now that the stock has risen, he or she closed that position and rolled it to the higher strike to protect some gains. (See our Education section)

LCC gained 8.27 percent to $11.78 yesterday and has been rising after a pullback over the summer. Airline operators have continued to surprise to the upside and now stand to benefit from lower fuel prices as oil slumps. Earlier this week, the industry's trade group raised its profit forecast as tight capacity keeps fares high.

Overall option volume in the name was 8 times greater than average in the session, according to the Depth Charge. Puts accounted for more than two-thirds of the activity.
Share this article with your friends



The fastest money in the market
View full report »

Premium Services

Education & Strategy

Dissecting a big institutional trade

This week's column will study a recent call ratio spread. We're not recommending using this strategy because it has potentially huge risk. But we can learn from this different use of options by a large institutional investor.

View more education articles »