Friendlier Skies, But Turbulence Ahead?

Shares in American Airlines parent company AMR Corp (AMR) rose 5% to $5.75, trending with other major airlines after a pullback from record crude oil levels, and following news that Chicago’s O’Hare International Airport intends to lift 4-year-old flight caps the fall – a move that an FAA spokesman said would give airlines greater flexibility in adjusting flight schedules to demand.

American Airlines is one of the two biggest carriers servicing O’Hare. It may have been happenstance, but an immediate upshot was seen in naked call buying at the July 6.00 strike, with the $1 price tag on this position wagering on a 21% gain for American Airlines shares by July 18. We should note that implied volatility on all AMR Corp options is ticking in at its highest level in at least 52 weeks at 161% - suggesting that the options market expects even more turbulence from this low-flying airline by half over the next month.