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JetBlue Airways Corporation Takeover Talk Triggers Call Buying


JBLU bulls bought to open front-month call options,

Buyout rumors attracted option bulls to JetBlue Airways Corporation (NASDAQ:JBLU) on Friday, with call options flying off the shelves. By the time the dust settled, the airline issue had seen roughly 13,000 calls change hands -- about 21 times its average daily call volume, and more than seven times the number of JBLU puts exchanged.

Most active was the July 7 call, where close to 9,000 contracts traded at a volume-weighted average price (VWAP) of $0.07. Three-quarters of the calls crossed on the ask side, and open interest surged over the weekend, hinting at newly bought bullish bets.

To reap a reward on the play, the buyers need JetBlue Airways Corporation (NASDAQ:JBLU) to surmount $7.07 (strike price plus VWAP) by July 19, when the options expire. Risk, meanwhile, is limited to the initial premium paid for the calls -- though that wasn't necessarily cheap. The stock's Schaeffer's Volatility Index (SVI) of 43% ranks in the 79th percentile of its annual range, suggesting short-term options are relatively expensive at the moment.

The traders were likely gambling on a buyout bid from JetBlue founder David Neeleman, who eventually denied the rumors to the Wall Street Journal. Nevertheless, JBLU shares were up 2.2% at $6.42 this morning, 10.1% beneath the aforementioned breakeven.

Whatever the motive, Friday's appetite for bullish bets marked a change of pace among JBLU traders. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.40 ranks in the 92nd percentile of its annual range, suggesting near-term options players are more put-skewed than usual right now.

This article by Andrea Kramer was originally published on Schaeffer's Investment Research.

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