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Saturday, May 25, 2024

Puts Fly Off The Shelves At AMR Corp. As Shares Tumble

Today’s tickers: AMR, SBUX, FDX & LVS

AMR – AMR Corp. – Shares in AMR Corp. went down in flames today, falling nearly 40.0% this afternoon to $1.83, before trading in the stock was halted for a second time…and then a third, fourth, and fifth time at current count. Implied volatility on the stock shot up 136.39% to 194.42% in early-afternoon trade on fears the U.S. may be heading into recession and concern AMR Corp. may need to eventually consider bankruptcy protection. Investors eyeing the breathtaking drop in shares of the airline operator snapped up in- and out-of-the-money put options across multiple expiries. The November $2.0 strike put attracted the greatest volume, with more than 12,000 contracts having changed hands against open interest of 574 positions. It looks like most of the puts were purchased for an average premium of $0.21 apiece. Investors long the puts profit in the event that shares in AMR Corp. trade beneath the average breakeven price of $1.79 at expiration next month. Same-strike puts expiring in October drew a crowd, as well. Traders purchased the majority of the more than 9,700 puts exchanged at the Oct. $2.0 strike for an average premium of $0.14 each. Put premiums may appreciate should implied volatility edge higher and shares in the parent company of American Airlines fall further as the story continues to play out.

SBUX – Starbucks Corp. – Fresh prints in Starbucks Corp. put options this morning indicate one investor may profit handsomely should shares in the maker of Frappuccinos and Tazo teas decline substantially in the next seven weeks to November expiration. The spread may be an outright bearish bet on the specialty coffee retailer or a protective play on the stock ahead of the company’s fourth-quarter earnings report after the final bell on November 3. Shares in SBUX fell 2.3% in early afternoon trade to stand at $36.43. Large blocks of puts in excess of 5,000 contracts each changed hands at the Nov. $30 and Nov. $34 strikes against previously existing open interest of 503 and 326 contracts, respectively. The investor responsible for much of the activity appears to have purchased the Nov. $30/$34 strike put spread at least 4,340 times at a net premium of $1.02 per contract. The spread positions the investor to profit in the event that shares in Starbucks Corp. drop 9.5% to trade beneath the effective breakeven price of $32.98 at expiration next month. Maximum potential profits of $2.98 per contract are available on the trade if SBUX shares plunge 17.65% to trade beneath $30.00 at expiration. Options implied volatility on the stock rose 8.0% to 54.5% by 1:10 pm in New York.

LVS – Las Vegas Sands Corp. – Shares in Macao casino operators fell last week on concerns of slowing growth in China. The selloff in names such as Las Vegas Sands Corp. and Wynn Resorts Ltd. continued this morning, with shares in LVS sliding as much as 5.45% to $36.25 today. The stock got off to a rocky start, but shares in LVS have since fought their way back to rally 0.50% to $38.54 as of 12:30 pm EDT. At least one options trader is positioning for the recovery story to continue to play out on LVS through October expiration. It looks like the investor effectively established two call spreads on the stock to prepare for limited gains in the price of the underlying. The bullish player appears to have purchased 1,000 in-the-money calls at the Oct. $35 strike for a premium of $4.10 each, purchased 500 calls at the Oct. $37 strike at a premium of $2.95 apiece, and sold 1,500 calls up at the Oct. $39 strike for a premium of $1.97 a-pop. It may be easiest to consider the transaction in two parts. The 1,000-lot Oct. $35/$39 call spread cost a net premium of $2.13 per contract, and prepares the trader to accrue maximum potential profits of $1.87 per contract in the event that shares in LVS top $39.00 at expiration. The smaller portion of the trade, the 500-lot Oct. $37/$39 call spread at a net cost of $0.98 apiece, may yield maximum gains of $1.02 per contract with the stock up over $39.00 at October expiration. Options implied volatility on LVS is up 3.6% at 80.2% in early-afternoon trade.

FDX – FedEx Corp. – Put activity on FedEx Corp. this morning suggests one strategist is positioning for shares in the provider of transportation and business services to potentially slip to fresh multi-year lows by October expiration. Shares in FDX are currently down 1.3% to stand at $66.81 as of 11:40 am in New York. The investor responsible for the bearish transaction appears to have purchased 3,000 puts at the Oct. $65 strike for a premium of $2.28 each, and sold the same number of puts at the lower Oct. $60 strike at a premium of $0.92 apiece. Net premium paid to initiate the spread amounts to $1.36 per contract, thus positioning the trader to profit should shares in FedEx decline 4.7% from the current price of $66.81 to breach the effective breakeven point on the downside at $63.64. The investor may rake in maximum potential profits of $3.64 per contract on the position in the event that shares in FDX drop 10.2% to trade below $60.00 at expiration later this month. Fedex’s shares recently secured a 2-year low of $64.55 on September 22, but have not traded below $60.00 since July 2009.

Caitlin Duffy

Equity Options Analyst

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