Put seller targeting Southwest


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Southwest Airlines bounced near the key $10 level yesterday, prompting one investor to write an insurance policy on the stock.

LUV Chart optionMONSTER's tracking systems detected the sale of 10,000 August 10 puts for $0.25 against open interest of just 32 contracts. The trade pushed total option volume in the name to 17 times greater than average.

LUV surged 6.21 percent to $11.29 yesterday and has been lagging the broader airline sector all year. The stock is down 15 percent in the last three months, which drove up its implied volatility to 40 percent from 29 percent over the same period.

Yesterday's put seller is looking to earn premium from that elevated volatility. This trader apparently thinks that LUV will stay above $10 and that time decay and lower volatility will render the contracts worthless. (See our Education section)

The $10 level may also be considered important because it provided resistance in September and October, which may cause some chart watchers to expect support around the same price.

The company's last earnings report on April 21 matched estimates, and the next release is scheduled for the pre-market on July 29.

(Chart courtesy of tradeMONSTER)

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

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This article appears in: Investing , Options

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