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Eaton Corp. (ETN) The power management company popped up on our ‘hot by options volume’ market scanner in morning trading after one pessimistic player purchased a debit put spread in the October contract. Eaton’s shares lost 1.2% to trade at $71.01 as of 12:35 pm ET. The investor responsible for the plain-vanilla put spread is perhaps bracing for continued erosion in the price of the underlying shares ahead of the firm’s scheduled presentation at the Morgan Stanley Global Industrials Conference on Wednesday. The investor picked up 1,800 puts at the October $70 strike at a premium of $2.80 each, and sold the same number of puts at the lower October $60 strike for premium of $0.60 apiece. The net cost of the purchasing the spread amounts to $2.20 per contract. The trader stands ready to amass profits should Eaton’s shares fall another 4.5% to breach the effective breakeven price of $67.80 by expiration day in October. The put player could walk away with maximum potential profits of $7.80 per contract if Eaton Corp. shares plunge 15.5% lower to trade under $60.00 by expiration. Options implied volatility on the stock inched up 5.7% to 31.48% by 12:40 pm ET.

AK Steel Holding Corp. (AKS)Shares in steel producer, AK Steel Holding Corp., rallied as much as 3.65% during the first half of the trading session to secure an intraday high of $13.07. AK Steel’s shares are currently up a lesser 1.50% to stand at $12.80, which is still 52% below the stock’s 52-week high of $26.75, attained back on January 11, 2010. AKS shares currently stand 12.9% above the 52-week low of $11.34 reached on July 1, 2010, and options traders populating the stock today appear to be positioning for shares to continue to rebound in the next couple of months. Investors purchased roughly 4,500 calls at the September $14 strike for an average premium of $0.29 a-pop. Call buyers at this strike are poised to profit should AKS shares surge 11.6% over the current price of $12.80 to exceed the average breakeven point to the upside at $14.29 by September expiration. Optimism spread to the higher September $15 strike where bulls picked up approximately 2,200 calls at an average premium of $0.16 each. Investors make money if the price of the underlying stock jumps 18.4% to trade above $15.16 ahead of expiration day next month. Finally, bullish players purchased about 1,000 calls at the October $14 strike for an average premium of $0.63 apiece. Profits start to accumulate for traders long the October $14 strike calls as long as AK Steel’s shares surge 14.3% to surpass the average breakeven price of $14.63 by October expiration. The surge in demand for options on AKS helped lift the overall reading of options implied volatility on the stock 21.1% to 63.93% by 12:30 pm ET.

American Commercial Lines Inc. (ACLI)A bullish risk reversal initiated on the provider of dry and liquid cargo barge transportation in U.S. inland waterways this morning suggests one option strategist is expecting the price of the underlying stock to appreciate ahead of December expiration. ACLI’s shares increased 1.3% to stand at $27.71 by 12:15 pm ET. The bullish player appears to have sold 1,000 puts at the December $25 strike at a premium of $2.15 each in order to purchase the same number of calls at the higher December $30 strike at a premium of $2.50 apiece. The net cost of the transaction amounts to $0.35 per contract. Thus, the investor responsible for the risk reversal is positioned to make money should American Commercial Lines’ shares surge 9.5% in the next four months to trade above the average breakeven price of $30.35 by expiration day. ACLI shares last traded above $30.35 back on September 23, 2009. The share price is currently up more than 58% since June 9, 2010, when the stock touched a 6-month low of $17.53.

AMR Corp. (AMR) Shares of the owner of the second-largest U.S. airline rallied as much as 6.8% this morning on speculation that Emirates, which is the biggest airline by international traffic, could be interested in purchasing a stake in AMR Corp. The rumors have since been dispelled by the Dubai-based company after Emirates’ President, Tim Clark, stated the firm “certainly wouldn’t be doing that” in reference to the takeover chatter. AMR’s shares have since retained a 3.65% rally on the day to trade at $6.26 as of 12:50 pm ET. Earlier in the session it seems the unconfirmed takeover speculation and the shift higher in the price of the underlying stock inspired frenzied call buying on the operator of American Airlines in the September and October contracts. Traders bought approximately 9,100 calls at the September $7.0 strike for an average premium of $0.12 apiece. More than 15,400 calls changed hands at the September $7.0 strike by 1:00 pm ET. Call buyers are positioned to make money as long as AMR’s shares rally above the average breakeven price of $7.12 by expiration day next month. Bulls also looked to the higher October $8.0 strike to purchase roughly 1,100 calls for an average premium of $0.10 a-pop. AMR’s shares would need to jump 29.4% over the current price of $6.26 in order for October $8.0 strike call buyers to start to make money above the average breakeven price of $8.10 by expiration day. Although the takeover rumors were denied by Emirates earlier today, options implied volatility on AMR Corp. is still up 14.4% at 61.89% as of 12:55 pm ET.

Source: Monday Options Brief: ETN, AKS, ACLI & AMR