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AMR Corp (AMR) – An early morning surge in the price of oil to $131 per barrel was quickly followed up by news from American Airlines’ parent  AMR Corp. that it would drop 45 planes from its fleet, sharply scale back its domestic routes, and begin charging fees for all checked bags. As the market mood curdled toward any stock believed to be at the mercy of mother oil, option implied volatility on all airlines wended higher. A scan of our list of “Top Implied Volatility Gainers” reads as a virtual who’s who of major carriers, with United Airlines’ parent UAL(UAUA)registering a 40% spike in implied volatility to 114.4%, American Airlines’ parent AMR up 35.5% to 111.8% and Delta Airlines’ (NYSE:DAL) implied volatility up 28.7% to 74.0%. But it was the volume in AMR Corp that caught our attention for some counterintuitive plays that seemed to fly in the face of the near 20% drop in share price to $6.58 (a new 52-week low). With more than 52,000 options in play by early afternoon, option traders appeared to sell front-month calls in concert with puts in a short volatility strategy designed to capitalize today’s leaden premiums.   Elsewhere we observed buying interest – albeit on scant 410-lot volume – in November $20 calls for 25 cents, with the same strike attracting buyers in the January contract as well. It bears wondering what the buyer of this upside call is thinking. As recently as last autumn, pressure was rising on American Airlines to spin off its AAdvantage program -  a frequent flier program that Bloomberg News reported at the time could be worth as much as the airline itself (and this at a time when AMR Corp shares were trading much higher). Could the latest battering at the hands of almighty crude force American’s hand on the rewards program?    

Frontier Oil Corp (NYSE:FTO)  –  Shares in oil refiner Frontier Oil staged an impressive 3% gain on the day to $28.13 on a day of continued spiraling gains for the sector. Earlier this month the company reported a drop in Q1 earnings on declining gasoline profits, but has otherwise drawn bullish analyst attention on its prospects for Q2 and Q3 due to higher input and demand for its diesel fuels from the agriculture sector. We believe this may explain not just the 27% increase in implied volatility on all Frontier Oil options this morning – making it one of the day’s top gainers – but an increase in option trading volume to 5.5 times the normal level. This included heavy buying on volume more than 5 times the open interest in June 30 calls, extending into fresh positioning in the 35 calls.

Marriott International (NASDAQ:MAR– While early buzz out of the hotel and hospitality space fixed on a windfall for Wynn Hotels and Resorts after basketball star Charles Barkley “settled up” a $400,000 gambling tab, option traders eyed another player in the space – looking for downside rather than up. With shares down nearly 2% to $34.60, an increase in option trading volume to 4.6 times the normal level appeared heavily localized in October 32 puts which were bought for $2.05 today. We counted about 5 tests of the $31 level for Marriott shares over the past 6 months, but it is worth noting here that Marriott shares have not broken below the $30 level since October 2005. Today’s October 32 puts require a breach of $29.95 just to break even.   

Martha Stewart Omnimedia (NYSE:MSO) – We wonder what’s cooking in domestic mogul Martha’s kitchen that’s got option traders wagering on volatile price action into the fall. Shares declined 1.6% to $8.93 as of the noon hour, in keeping with a theme of depletion over the past year (Martha Stewart Omnimedia shares are down more than 51% over the past 52 weeks). The increase in option trading volume to more than 14 times the normal level appeared in the September 7.50/10 strangle combination, where a trader appeared to go long this volatility formation. The combined cost of the position at $1.35 implies a break below $6.15 or above $11.35 – shares have traded as low as $5.57 and as high as $10.77 over the past 6 months alone. A look at the implied volatility in all Martha Stewart Omnimedia options shows the 51% reading elevated above the 46.5% historic reading, suggesting options pricing in 9% more price risk over the next 30 days.    

General Electric (NYSE:GE)  – GE shares logged a marginal .82% decline to $31.46 as the company’s CEO Jeff Immelt reaffirmed year-end profit guidance in a presentation for GE’s Electrical Products Group, adding that he would consider a spinoff of its fabled appliance unit, but that the unit would be “easily saleable in a difficult market” (this per information from Bloomberg). The news  occasioned massive option volume in the September contract, where traders appeared to sell premium at the 34 and 35 call strikes. The massive volume in excess of open interest in out-of-the-money September 27.50 puts traded mostly to buyers at 60 cents.   

Solarfun Power Holdings (SOLF) – American depositary receipts in Chinese solar power panel maker Solarfun staged a 7% rally characteristic of the sector to read $27.05 over the noon hour, this after its quarterly numbers beat market expectations in an atmosphere of many market actors looking with desperate fervor at alternative energy companies. While volume was heaviest at the June 30 call strike, which traded to buyers and sellers, option traders were sellers of premium at the 35 and 40 call strikes, and the June 22.50 puts attracted buyers in excess of pre-existing open interest.

Anheuser-Busch (NYSE:BUD) – Merger rumors involving the Budweiser maker are proving harder to quash than the average beer can.   Implied volatility on all Anheuser-Busch options rose nearly 23% to 36.7% today, making it one of the top volatility gainers on our platform, and gapping far above the 21.6% historic reading for Anheuser-Busch shares. With the equivalent of nearly 15% of Anheuser-Busch’s total open interest in play, calls are outmoving puts by 2.7 to 1, with buying interest in June and July calls at strikes as high as $60 and long volatility positioning in the September contract, at what looks like the 45/55 strangle.

Rebecca Engmann Darst contributed to this report.

Source: Wednesday Options Outlook: AMR, FTO, MAR, MSO, GE, SOLF, BUD