Unusual Options Activity: American Airlines (AAL)

Shares of passenger carrier American Airlines (AAL) dropped nearly 9 percent on Friday, following the announcement of a new Covid variant. One trader is betting on a rebound in the months ahead.

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  • That’s based on the June $17 calls. With 198 days until expiration, over 4,690 contracts traded, a 31-fold jump in volume from the prior open interest of 150. The buyer of the calls paid $1.19 to do so.

    Shares last traded around $17.75, meaning the option is already $0.75 in-the-money, an that the actual cost to bet on a move higher is substantially lower.

    Even with the recent drop, the airline has outpaced the overall market, with a 38 percent gain in the past year. The company even reported a profitable quarter, its first since the pandemic began.

    Action to take: Shares are likely to rebound once the full extent of the latest Covid variant is known, but chances are shares will recover from their drop in the coming weeks. With a 52-week high over $26 per share, a massive rally to new highs will take longer.

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  • Traders should consider the call, as the option has nearly 7 months to play out, which should be more than enough time for a rebound in shares. Already trading in-the-money, the chance of a total loss on the option is minimized.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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