American Express (NYSE: AXP) investor calls for near-term upside


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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 ( OTM ) 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.

Build a profit/loss graph of this long call trade by opening a free virtual trading account today. By doing so, you can access tools essential to evaluate the risk/reward dynamics of this and other stock and option trades.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Options
More Headlines for: AXP , OTM

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Jud Pyle

Jud Pyle

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