American Express Co. (NYSE: AXP )
dropped into the red during Tuesday's session along with the rest
of the financial sector despite positive notes from firms saying
credit card recovery remains on track. Options action suggests at
least one investor expressed bullishness on AXP and loaded up on
near-term upside calls.
AXP shares closed down more than 3% to $39.83 on Tuesday. AXP
shares reached a 52-week high of $49.19 in April, and call buying
action we saw hit the tape suggests one investor expects the stock
to turn up during the next month.
At 11:29 a.m. EST, a block of 6,000 out-of-the-money (
) June 42 calls changed hands for a premium of $1.66 per contract,
which was one cent lower than the ask price at the time of the
trade. These options closed with open interest of 815 contracts,
indicating the investor traded the calls to open. The June 42 calls
closed down roughly 63 cents with a 35-delta. A comparison of the
drop in stock to the decline in the calls suggests the investor
most likely bought this lot on a bet that AXP shares could climb
higher than the breakeven price of $43.66 prior to June options
expiration in 31 days. If the stock climbs at least 10% prior to
options expiration, the call buyer could theoretically make
unlimited gains to the upside. If AXP shares remain below the
breakeven price, this long call trade caps any losses at the
premium paid, or $1.66 per contract. Implied volatility of the June
42 calls is 45% compared to the stock's 30-day historical
volatility of 44%, which also indicated that buying action most
likely pushed up the implied volatility slightly on the day.
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