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AMR Corp. (AMR) Options traders are picking up call options on AMR Corp. after the parent company of American Airlines and American Eagle Airlines reported increases in passenger traffic for the month of April. Shares in AMR are up 5.85% in early-afternoon trade to stand at $6.51. It looks like options strategists purchased more than 11,000 calls at the June $7.0 strike for an average premium of $0.25 apiece today. Traders profit if shares in the airline operator surge 11.4% over the current price of $6.51 to exceed the effective breakeven price of $7.25 by June expiration. Open interest patterns at the June $7.0 strike suggest traders started snapping up the calls as early as last Friday. Investors buying the calls ahead of today’s substantial move higher in the price of the underlying are being rewarded for booking bullish bets on the carrier in advance. Traders paid an average premium of $0.13 apiece for the calls during the past 6 days, while investors buying the contracts today paid more than two times that amount for the same options.

Timberland Co. (TBL) Shares in footwear and apparel maker Timberland Co. dropped faster than a felled tree following the weaker-than-expected first-quarter earnings report released ahead of the opening bell this morning. The stock declined as much as 30.7% to touch down at an intraday low of $28.81 after the company missed estimates for the first time in seven quarters, posting net income of $0.35 a share, against the average analyst forecast of $0.59 a share. In the days leading up to the earnings announcement some options traders picked up what used to be fairly deep out-of-the-money put options. The massive drop in TBL shares today sent premium on the now deep in-the-money put options soaring. It looks like pre-earnings report put-buyers paid an average premium of $1.27 per contract for roughly 810 puts at the May $40 strike. As of 12:30pm in New York, those same put contracts are selling for $10.00 a-pop. Approximately 1,000 puts have changed hands at that strike today for an average traded premium of $9.11, on open interest of 1,426 contracts.

SPDR S&P Metals and Mining ETF (XME)With commodities continuing to pull back today, it looks like one options strategist initiated a bear put butterfly spread on the Metals and Mining ETF within the first 20 minutes of the opening bell this morning. Shares in the XME, an exchange-traded fund designed to replicate the performance of the S&P Metals & Mining Select Industry Index, are currently trading 0.65% lower on the day at $71.52 as of 11:50am. The fund invests in a range of industries, including steel, coal and consumable fuels, gold, precious metals and minerals, aluminum and diversified metals and mining. The put player positioned for continued near-term weakness in the sector by purchasing 1,500 puts at the May $69 strike for a premium of $0.89 each, selling 3,000 puts at the May $66 strike at a premium of $0.34 each, and buying 1,500 puts at the lower May $63 strike for a premium of $0.19 a-pop. Net premium paid to initiate the bearish spread amounts to $0.40 per contract. Thus, the investor stands profits in the event that shares in the XME drop 4.1% from the current price of $71.52 to breach the breakeven point at $68.60 by May expiration. Maximum potential profits of $2.60 per contract are available to the investor should shares in the XME plunge 7.7% to settle at $66.00 at expiration in a couple of weeks. The parameters of the spread create a nice risk-reward ratio for the trader, who may only ever lose the $0.40 premium per contract paid to put on the spread, but stands to gain 6.5 times that amount should the stars align in his favor and shares stand at $66.00 at expiration later this month.

Republic Airways Holdings, Inc. (RJET)Shares in the holding company for regional airlines Chautauqua Airlines, Shuttle America and Republic are up 0.20% this morning to stand at $4.75 just before 11:30am. The stock dropped to a new 52-week low of $4.68 on Wednesday following its first-quarter earnings release after the close on Tuesday. RJET’s shares have halved in value since November 4, 2010, when the stock touched a 52-week high of $9.58. But, activity in long-dated call options on the stock today suggest some investors expect the price of the underlying to rebound going forward. Options traders exchanged more than 5,100 calls at the November $5.0 strike on open interest of just 20 contracts. The number of calls traded at that strike exceeds overall previously existing open interest on RJET of 3,139 contracts. The majority of the call options were purchased for an average premium of $0.85 each. Call buyers at that strike profit in the event that the airline operator’s shares surge 23.2% over the current price of $4.75 to surpass the average breakeven point to the upside at $5.85 at expiration in November. Shares in RJET last closed above $5.85 on April 8, 2011.

Source: Thursday Options Brief: AMR, TBL, XME & RJET