American Electric Power Options Active

By Jud Pyle, CFA, chief investment strategist for the Options News Network

With very little time to go until options expiration -- four full trading days, in fact -- a group of investors is stocking up on front-month, out-of-the-money calls in American Electric Power (AEP).

The December 36 call is being traded heavily today, as nearly 14,500 contracts have crossed the tape. This compares to existing open interest of just 240, and suggests these options were likely traded to open. In the past six weeks, average daily option volume on AEP has been around 3,500 contracts across all strikes, so this degree of volume is definitely worth noticing.

What's also notable is that this does not appear to be the work of a single investor. The largest block all day has been 2,318 contracts. Instead, many small and midsized blocks have been hitting the tape throughout the trading day.

The majority of today's volume transpired during the first three hours of trading, which coincided with the stock's rally to a new 52-week high around 11 a.m. EST. The stock's quick jump to new highs was spurred by news that Berkshire(BRK.B) received U.S. antitrust approval for a joint venture with AEP. At this point, the shares were trading at $36.52, making the 36-strike calls in-the-money.

Since then, the stock has settled lower and is now in the red, down about a half-percent on the day at $35.40. The option, along with the stock, has been volatile today, trading between 65 cents and 15 cents. Currently, the 36-strike calls are bid at 15 cents and asked at 25 cents.