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Volatility strategy targets Southwest

Chris McKhann (chris.mckhann@optionmonster.com)

Shares of Southwest Airlines are in the middle of a recent tight range, but one trader is looking for volatility to rise.

The option volume in LUV tops 18,000 contracts, compared to a daily average of 527 over the last month. Virtually all of that volume is in one print in the January 7.50 puts.

A trader bought 18,000 of those puts for the ask price of $0.10, according to optionMONSTER's tracking systems. The volume was almost 9 times the previous open interest at the beginning of the day, so this is a new position.

Less than a minute later, the largest block of LUV stock traded when 180,000 shares changed hands for $9 even. It appears that the trader is looking to get long volatility in the name in the coming months. The average implied volatility for LUV is 24 percent, a 52-week low. (See our Education section)

LUV is up 1 percent to $9.02. It has been trading mostly between $8.70 and $9.30 going back to July and between $8 and $10 in the last year.

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