Call action spikes as airlines soar
Airlines had a relief rally yesterday, fueling a surge in bullish option activity.
optionMONSTER's Heat Seeker tracking program detected heavy call buying in American Airlines, Delta Air Lines, Southwest, and United Continental. Volume was more than triple average amounts in all four, with upside contracts dominating trading across the board.
AAL's Weekly 44s expiring this Friday, June 5, led the charge. Turnover of 15,000 was more than twice the previous open interest in the strike, and premiums rose from as low as $0.25 early in the morning to as high as $1.08.
That kind of leverage results from the fact that long calls cheaply lock in the price where shares can be purchased. Their low cost can also make them a safer bet than buying stock. (See our Education section)
The entire group shot higher after LUV said it would scale back plans to add capacity, easing concerns raised last month that airlines would lose the pricing discipline that made them one of the strongest groups in recent years. AAL led yesterday's gains by climbing 4.27 percent to $44.18, followed by DAL's 3.33 percent move to $44.35.
LUV's Weekly 40 calls expiring on June 12 traded almost 7,300 times, eclipsing open interest of 85 contracts while premiums rose from $0.15 to $0.40. DAL's busiest contracts were the Weekly 45s expiring this Friday and the July 45 calls, but volume was under open interest in both of those, so it was unclear whether they were opening or closing trades. Most of UAL's leading volume was below open interest as well.
UAL advanced 3.15 percent to $56.31, and LUV appreciated 2.37 percent to $37.85.
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