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Limited upside seen for American Axle

By: optionMONSTER
Posted: 5/16/2011 11:40:00 AM
Referenced Stocks: AXL

American Axle & Manufacturing is climbing today, but one investor apparently doubts that there will be a major rally.

optionMONSTER's tracking systems detected the sale of about 3,700 June 42 calls for $0.35 to $0.45 against open interest of just 306 contracts. The trade pushed overall option volume in the maker of automotive drivetrains to more than triple its daily average.

AXL is up 1.69 to $11.43 in morning trading. It rallied more than 75 percent between November and mid-January but then rolled over and proceeded to lose more than one-quarter of its value.

Today's early gains apparently resulted from takeover speculation. Investors who own shares often write calls under such circumstances, looking to earn income from their positions. They're agreeing to accept a small premium now in return for surrendering greater upside, indicating that they don't expect a major rally in the near term. (See our Education section)

AXL has benefited from a rebound in the auto sector, and its results crushed analysts' forecasts the last time it reported earnings on April 29.