Armstrong Industries (AWI): Case Study: It's Not the Size...It's How Unusual...

A quick Friday post regarding Armstrong Industries (AWI)which closed 9% higher on earnings, wit was as high as 18% up intraday.

I had a note out to subscribers on October 29th regarding Armstrong, as follow:

"Armstrong Worldwide (AWI) trading 1,366 calls, 15X average with IV jumping 6%, November $45 calls with 1,000 trading with earnings on 11-5. Shares have consolidated tightly between the $40 and $43 levels. The $2.37B maker of flooring and ceiling materials trades 0.85X sales, 14.4X cash flow and 1.25X book. Armstrong raised its FY10 view back in August."

This was a case where the action was not huge by any means, but it stuck out as being unusual, 15X daily average volume in out of the money calls with earnings in a week. The calls were bought at $0.55 to $0.60 and closed the day marking $5.25, around a 750% gain over the course of a week.

I see these often and it pays to notice not just the massive action in the heavily traded names, but pay closer attention to where the action is very odd and basically makes no sense, as they often result in the best finds. In this case the valuation looked good and the chart set up for a big move with the recent constricted trading, so it looked to have the potential to explode, and it did.

On that same story put out to subscribers I also mentioned unusual call buying in Arrow Electronics (ARW) December $32.50 calls, and Arrow has been climbing steadily as well.