today, after the company released a traffic update for January. Although overall traffic declined by 1.7% on a year-over-year basis, capacity inched 0.5% higher last month. As such, close to 4,100 calls have been exchanged so far, which is nearly eight times the equity's expected intraday call volume. Meanwhile, just over 700 puts have traded.
Leading the pack is the February 12 call, where 3,750 contracts have changed hands at a volume-weighted average price (VWAP) of $0.05. Nearly all of these calls crossed at the ask price, pointing to buyer-driven activity. Because this option presently holds open interest of just 1,304 contracts -- and implied volatility was last seen 6.6 percentage points higher -- it can be assumed that new bullish positions are being implemented here. Essentially, these traders are counting on the stock to surmount the breakeven rail of $12.05 (strike price plus the VWAP) by the close on Feb. 15, when these front-month options expire. This denotes a 4.6% increase over current levels.
According to data pulled from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), today's campaign for calls is hardly unusual for the discount airline. In fact, LUV's 10-day call/put volume ratio checks in at 32.82, confirming traders have bought to open almost 33 calls for every put during the last two weeks. This ratio ranks higher than all other readings collected within the past year, meaning speculators have been snapping up bullish options over bearish at an annual-high clip.
Although LUV reported a 49% drop in fourth-quarter earnings on Jan. 24, the shares are still up roughly 13% year-to-date. What's more, the stock has outperformed the broader S&P 500 Index (SPX) by close to 16 percentage points during the past three months. However, the delta for the February 12 call sits at 13, implying these contracts have a 13% chance of finishing in the money. Nevertheless, the most today's bulls have at risk is the initial premium paid for their optimistic bets.
Anybody who has a level 2 and watches LUV like I have the past month knows, that there is serious manipulation. If you have level 2 watch the bid and ask. The bid will ALWAYS be 1 penny lower than the ask with a bid of 15,000 shares with ONLY 1 market maker and the ask side is ALWAYS 1 penny higher with a sell order of around half of the ask order so about 7k or 8k. This process continues for about 5 minutes then reverses. The ask will all the sudden go 15k or 20k shares selling with the bid side of about 7k or 8k buying AND ALWAYS ONE MARKET MAKER!!
This has been going one for at least a month, its ridiculous. After mid feb when the options expire this piece of #$%$ will go down. So short this #$%$ at around 11.97
I promise, you won't be disappointed.
And for those who have level 2 on there trading platform, just watch the bid/ask always with ONE market maker, you will see what I'm talking about. Because there is no reason why LUV should be continuing to rise when oil prices have gone to nearly 100 dollars a barrel. And yes.... I'm aware that LUV hedges against fuel cost. I still believe this P.O.S will fall after mid feb when the options expire.
With all due respect, I believe you are slightly misinformed. Manipulation is no longer a factor used in serious analysis in investing. It is usually used as a last resort for those who do not really understand what is going on with a particul stock. You really need to do some more work so that you can better understand this airline, the competition, and the fundamentals surrounding the stock and its industry. I look forward at that time to engage you in a more meaningful discussion.
Please take some more time to do a bit more DD before responding.
Thanks and GL.