Thursday Options Update: AMR, HD, FL, SWY, TWX & JNPR

American Airlines (AMR) – Curious activity piqued our attention today in AMR where shares have jumped 5% to stand at $8.90 and call buyers are out in force. Curious is a good term given yesterday’s report showing declining payloads and a broad downturn in passenger cargo across its routes. The share price in the company has rebounded off a $4.00 low in July, which coincides with the price of crude oil at three times today’s $46 per barrel. The last two broad sell offs in the market have failed to entice more weakness for AMR and we can only conclude that someone somewhere is getting bullish on the stock. Today’s option volume involved the purchase of January calls at the 10.0 strike on volume of 4,800 contracts where buyers paid premiums of 1.00 to 1.05. That means that a breakeven share price at expiration in five weeks of $11.05 is needed. Of course a continuation of the rally would also boost the options’ value. Option implied value is running at 129% and if its shares do continue an upwards trajectory, that will eat away at option premium. In the February contract investors paid 1.70 premium to secure buying rights at the $9.00 share price on volume of 5,000 contracts.

Home Depot (HD) – The gently firmer tone to retail stocks has enabled a near-6% rally for shares in Home Depot while option traders have feverishly bought call options reserving buying rates at fixed prices either side of today’s current $24.05. An early wave of buying saw investors scoop up about 1,000 calls at the December 22.5 strike at prices between 1.60 and 1.90. As the rally in the stock built momentum the price of those calls rose to 2.35 yielding an immediate profit if only at paper at this stage. Investors also bought 2,200 calls at the 25 strike adding about 10% more bull positions on the stock. In the January 30 strike calls investors paid a relatively light 28 cent premium to reserve buying rights should the stock stage a further 24% rally.

Foot Locker (FL) – Despite a 1.6% rally at shoe-retailer, Foot Locker to $7.00 today, option investors are selling calls in both December and January contracts on volume well in excess of existing open interest. With December options expiring in 15 days investors received premiums between 31 and 40 cents in exchange for writing call options at the 7.50 strike. In November shares sold off on heavy volume to as low as $3.70 per share and it would be of little surprise to learn that a buyer at that time has entered a covered call agreement today. Reaping the premium in addition to share price gains is a fair exchange for having the shares called away at the strike price at expiration. Some 1,800 calls were sold in the same way at the January expiration for a premium of 70 cents. Option implied volatility has plunged from 125% two weeks ago to 93% today.

Safeway Inc. (SWY) – The company announced expected earnings growth slightly above what analysts currently predicted and that gave the share price a boost. However, the shares appear to have turned tail following the sale of around 11,500 call options at the 25 strike in the December contract. Shares, which rose as high as $22.91 are lower now at $21.68 but the early gain created opportunity for the premium writer to bag 25 cents per contract on the call option sale. Shares haven’t traded as high as the strike price since they briefly broke above during intraday trading on October 8. The open interest at this specific strike stands at around 25,000 contracts most of which are established longs built at a 2.40 premium in mid-September. We’ll have to wait until tomorrow’s report to learn whether an investor closed a stale long position or established a fresh short.

Time Warner (TWX) – Media companies have felt the pressure recently with reduced discretionary spending and lower advertising revenues. Implied volatility is on the wane at Time Warner and has fallen from triple digits to 82% during the past two weeks. But today’s option activity has us foxed. On the one hand we can see a clean purchase of 10,500 puts at the December 8 strike for a premium of between 20 and 25 cents. In unrelated trading we saw call options at the 11 strike in December trading to a mid-market price of 15 cents.

Juniper Networks (JNPR) – It seems to be a case of more of the same when it comes to option trading in Juniper, where 20,000 lots have changed hands in early trading. Yesterday we noted call spreading between the December and January 15 and 16 strikes where traders where getting long the lower strike and short the upper. It’s the same pattern today on very little news. The company this week sent a letter to companies who partner with Juniper’s Canadian rival, Nortel where a persistently weak share price accompanies shuttering of its operations in desperate cost-cutting measures. Most notable today with shares trading at $16.44 and down 1.3% was the purchase of 6,700 put options at an 85 cent premium. The buyer could sell shares at a fixed price of $16.00 and so would break even in the event that Juniper’s shares fell beyond $14.15.