American Express has dropped along with other financials this month, but one big investor is using options to stay long the name.
Check out this large trade that occurred shortly before noon yesterday:
- A block of 34,843 April 125 calls was sold for $37.88.
- An equal number of June 125 calls was bought at the same time for $40.03.
- Volume was below open interest in the April contracts but not the Junes. That suggests a large existing position was forward by three months.
Calls often track movements in a stock’s price because they fix the level where investors can buy shares. Monday’s contracts were noteworthy because they were deep in the money, letting them follow AXP closely.
Investors sometimes use in-the-money calls as a substitute for owning stock. The strategy removes a large portion of the cost and captures only movements above the strike. It can leverage rallies but also significantly to the downside.
For example, the June 125 calls could double if AXP rises 26 percent to $205 by expiration. They could also lose half their value from the stock dropping just 11 percent.
AXP was at $162.89 when the options trade occurred. It closed at $163.12, up 2.1 percent on the day.
The blue-chip financial-services company has has moved sideways for almost two years. It rallied on January 27 after issuing strong guidance for the year. The stock dropped this month as Silicon Valley Bank and Credit Suisse collapsed, but has held its 100-day moving average. That could make some chart watchers expect a rebound.
Overall option volume was about 6 times greater than the monthly average in AXP, according to TradeStation data. Calls accounted for a bullish 92 percent of the activity.
Options trading is not suitable for all investors. Your TradeStation Securities’ account application to trade options will be considered and approved or disapproved based on all relevant factors, including your trading experience. See Characteristics and Risks of Standardized Options. Visit www.TradeStation.com/Pricing for full details on the costs and fees associated with options.