News that LUV will buy AirTran has AAI shares up $2.66 (58%) to $7.25 this morning, and at least one trader from last week seems to have been very fortunate, as the 738 Nov 5 calls bought last tuesday for 15cents are now worth about $2.30, or 15x what was paid to open the position.

Amazon.com (AMZN) shares notched a new 52-week high and are up $7.57 to $160.42 after JP Morgan raised their price target on the online retailer to $198 from $154. The firm says Amazon is gaining market share in eCommerce. In the options market, trading is brisk as well. 65,000 calls and 62,000 puts traded in Amazon.com so far. No big trades to report, however. The largest is a 500 lot of Jan 170 puts at $20.25, possibly a put writer looking for a move beyond $170 by Jan 2011 or willing to get assigned on those puts. Implied volatility in AMZN is up 5 percent to 40 today, roughly midway between a 52-week high and low of 55 and 27.

*Scanning all single-stocks subject to 2500 contracts minimum call or put volume

E*trade Financial adds 45 cents to $15 and 3,900 Oct 16 calls traded (85 percent ask) early Friday. The beleaguered broker/banker has been trying mightily to clean up its balance sheet, and even used a 10-1 reverse split to gain a respectable double digit share price. Today’s action shows some speculative call buying with the focus in the October $16 calls which have now traded 4,600 contracts; some 80% have occurred at ask and prior open interest in strike is 2,900 so this appears to be fresh buying.

*Scanning all single-stocks subject to 2500 contracts minimum call or put volume

CSX is up $1.34 to $55.73, even after BB&T downgraded shares of the railroad company to Neutral from Buy. Meanwhile, noteworthy options action today is a buyer of 7,160 Oct 60 calls at 28 cents each. 7,320 traded. Another 1094 Oct 57.5 and 410 Nov 57.5 calls traded (96 percent Ask.) Some of the action might be closing, as open interest is sufficient to cover in all three contracts. Meanwhile, implied volatility is down 3 percent to 31.

Frontline (FRO), the Bermudian shipping company, lost 3.8 percent to $27.69 Thursday and options volume rose to 3X the average daily, driven by an apparent buyer of Nov 24 – 27.5 put spreads, 2000X just before the closing bell. Open interest data indicate a new position was opened and possibly a shareholder looking for a short-term hedge. No news to explain the relative weakness in the stock yesterday. Next earnings due late-November, probably after the expiration.