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Mixed Bag for Airline Share Prices Keeps Option Traders Active

Today’s tickers: DAL, LCC, PCS & XHB

DAL - Unconfirmed reports today stated that DAL will likely announce plans to sell $500 to $750 million of five-year, senior secured notes that may price to yield approximately 10%. Shares of DAL reacted by gaining more than 4% during today’s session to $9.34. Bullishness was observed on the stock through call transactions this morning. It appears one trader, who originally purchased 6,500 calls at the December 9.0 strike for 40 cents apiece back on August 20, 2009, sold the chunk of calls today for a much richer premium of 1.35 per contract. The investor received a net profit of 95 cents per contract by selling to close the call position. Expecting further near-term gains in DAL, the trader spread the closing sale of the original calls against the purchase of 13,000 fresh calls at the October 10 strike for 42 cents each. Profit from the original bullish stance on Delta Air Lines was sufficient to double up the size of the long call position to prepare for further upside gains by expiration in October. – Delta Air Lines, Inc. –

LCC - In contrast to the bullish options activity observed on Delta Air Lines this morning, it appears investors employed calls on LCC to display bearish sentiment. Shares of US Airways have improved more than 2% to arrive at the current price of $5.09. It seems some traders doubt the airline will rally through $6.00 by expiration in October because some 10,200 calls were sold short at the October 6.0 strike for an average premium of 18 cents per contract. Call-sellers are apparently willing to bear the risk that shares rise through $6.18 – the breakeven point at which losses begin to amass – in order to receive 18 cents premium today. Shares of LCC would need to rally 21% to $6.18 before investors short the calls are exposed to potentially unlimited losses to the upside. Investors keep the full 18 cent premium if shares remain beneath $6.00 and the call options expire worthless by expiration. – US Airways Group, Inc. –

PCS - As global confidence returns investors are finding it hard to resist promising stories especially those that offer potential for meteoric share price gains. FT’s Alphaville is running an apparently well-heeled story who says that Germany’s Deutsche Telekom has got over the incompatibility fears of buying a U.S. mobile carrier. Since the big four face intense national competition, DT is apparently looking at a second tier carrier. The story appears to have resurrected the share price at PCS, which today has risen 2% to $10.34. Options traders were also swift to act today and bought October calls at the 10 and 12.5 strike boosting premiums some 11% and 75% respectively to 1.0 and 35 cents. The 12.5 strike activity is notable since today’s volume is about four-times the current reading of open interest. Currently, the delta of 24% indicates that investors assign a near one-in-four chance that shares may reach $12.50 by next month’s expiry. – MetroPCS Communications Inc. –

XHB - Bullish bets have been placed on the homebuilders exchange-traded fund today despite the 0.5% decline in shares to $16.00. It appears some 16,000 put options were sold for 17 cents apiece at the October 14 strike for an average premium of 17 cents apiece spread in order to finance the purchase of 16,000 calls at the higher October 18 strike for about 13 cents per contract. Perhaps traders employing the bullish risk reversal strategy are expecting the XHB to rally on positive August existing home sales due out Thursday and on August new home sales expected out this Friday. The reversal results in a net credit of 4 pennies per contract for investors. Traders retain the 4 cent credit as long as shares of the XHB remain higher than $14.00 by expiration next month. Additional profits are available in the event of a significant 12.5% rally through $18.00. Finally, it seems less optimistic investors paid 48 cents premium to purchase about 4,100 puts at the October 15 strike. If shares of the ETF fall on disappointing housing data, put buyers are positioned to profit beneath the breakeven price of $14.52. – SPDR Homebuilders ETF –


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