Today's Wall Street Journal had a blurb in their Option column on AMR. They reported that an institution purchased 10,000 contracts at about 2.60 on the January 2009 7.50s. This is a $2.6 million bet. For the purchaser to make money on these contracts the stock would have to get over 10.10. The big question is why did this institution make such a large bet?
I will put some possibilities out, but they are really guesses:
- The institution believes AMR will get taken over.
-This is not a bet but rather a hedge to offset a large short position in AMR.
- The institution believes the business is going to soar and that profits will follow.
- The institution believes that fuel prices will collapse.
Lets say for a second that this institution is not making this bet to hedge a position. In this case the belief that the stock would go up must be so strong that this size bet was deemed reasonable. Maybe a hedge fund who has come upon a thesis that seems likely to happen. Very interesting.
* Note I do not have a position in AMR but may take on at any point. I also may decide to not do anything. I am not aware of any position that the firm I work for has.
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