OptionMonster's Heat Seeker system detected buying in the May 79.50 calls for 47 cents early Monday morning. The credit-card issuer pushed higher into the afternoon, and premiums soon doubled to as much as $1.05. Volume topped 6,000 contracts, almost twice the open interest in the strike.
That kind of leverage is possible because calls lock in the price where a stock can be purchased. They cost much less than the shares, letting investors profit from rally with much less capital at risk, though they can quickly lose value on a pullback.
American Express rose 0.91% to $79.70 on Monday. It peaked around $96 last summer, stalled near that level in December, and then quickly skidded under $80. Shares have been trying to hold their ground more recently at the current level, which was an important consolidation area in late 2013.
Total option volume ended the session at almost twice the daily average. Calls outnumbered puts by more than 3 to 1.
-- Written by David Russell of OptionMonster.
Russell has no positions in AXP.