AMR Corporation (NYSE: AMR) shares are trading higher after the company announced that it will charge passengers $25 for a second checked bag beginning on May 12 to counteract higher fuel costs. AMR is also receiving support from declining oil futures and speculation that airline mergers may allow carriers to increase fares. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AMR.

After hitting a one-year high of $29.32 in July, the stock hit a one-year low of $6.81 last week. AMR opened this morning at $8.00. So far today the stock has hit a low of $7.95 and a high of $8.63. As of 12:20, AMR is trading at $8.50, up $0.76 (9.8%). The chart for AMR looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $6 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just seven weeks as long as AMR is above $6 at June expiration. American would have to fall by more than 29% before we would start to lose money. Learn more about this type of trade here.

As you know, American Airlines -- AMR Corp (NYSE: AMR) has been having a tough week. The company started running a new round of inspections on Tuesday which has led to large cancellations for the past 4fourdays.

Today, once again there were more cancellations, with another 595 flights being grounded. It can be very frustrating to find out your flight has been canceled, but some airports are upping their efforts to accommodate the unlucky passengers. All combined, the airliner has been forced to cancel in excess of 3,000 flights this week, impacting some quarter of a million travelers.

We have all had to deal with canceled, or delayed flights... and one thing is for sure, it is never a pleasant feeling, so you can just imagine the mood in airports all across America in reaction to this week's mess. Well, according to a story from MSNBC, some airports are taking extra steps to help make American passengers as comfortable as possible.

It's another day of cancellations for American Airlines -- AMR Corp (NYSE: AMR) -- as its current round of plane inspections is moving slower than had been anticipated.

Roughly 900 of the airlines flights have been canceled today, representing around 40% of its usual daily flight volume. The delays started on Tuesday when the American announced that it had to re-run inspections that it held last month after the FAA decided that the work done did not meet its standards.

On Tuesday the airline canceled 460 flights, and then another 1,094 yesterday, so it has been a tough few days for passengers trying to get to their destinations. All in all, over 100,000 passengers have been effected by the current situation at American.

American Airlines -- AMR Corp (NYSE: AMR) -- is once again canceling massive amounts of flights in order to inspect the bundling of wires in some of its airplanes. You may recall, that this is the same situation that led to around 400 cancellations last month, and this current inspection is estimated to affect even more flights, with up to 500 flights being canceled.

The current round of cancellations, which represents about 20% of total American flights, started late Tuesday afternoon, and was expected to last Tuesday night and into Wednesday, and possibly even beyond.

Passengers that were scheduled to fly the canceled American flights have been switched over to alternative American flights, or placed on other airlines that service the selected routes.

If you have a trip planned on United Air Lines, Inc. (NASDAQ: UAUA) over the next couple of days, you may want to call ahead and verify that your flight is still on schedule. According to news reports today, the airline is going to be performing comprehensive inspections of 52 of its 777 aircraft.

Air travelers have been dealing with delays for the past week as all the major airlines are working to get all their planes inspected and given the "all clear" by the FCC. Last week, we saw major cancellations and delays for travelers flying American Airlines (NYSE: AMR) and Delta (NYSE: DAL) as those two carriers were having scores of planes inspected for potential problems with their wiring bundles.

The United inspections are looking at the fire suppression system in the cargo bays. The company wants to make sure that this system is working correctly, and notified authorities when it discovered that one of the five bottles in the suppression system was skipped over during the last inspection of the system.

For anyone who has plans to fly on American Airlines, AMR Corp (NYSE: AMR) or Delta (NYSE: DAL) today, you may want to call ahead and verify that your flights are still taking off as planned, as both airlines are canceling hundreds of scheduled flights today.

Both carriers are grounding a large number of flights as they continue to hold inspections on wiring bundles on some of their planes. For American, the company is planning to ground 132 of its flights today, while Delta is canceling 275 flights.

The Federal Aviation Administration is in the middle of a massive inspection project, in which it stated that it will be inspecting 10 safety orders (also known as airworthiness directives) at every single major airline by March 28. This comes after a scandal broke out over missed inspections at Southwest Airlines (NYSE: LUV) earlier this year.

AMR (NYSE: AMR) hit the market with two pieces of bad news yesterday. The parent of American Airlines announced that its fuel costs would rise well above projections made by the company two months ago. AMR's new forecast projects the firm will have a 2008 fuel bill of $9.29 billion -- more than $1 billion above what it was expecting earlier in the year -- assuming prices don't rise even further than planned, according to an SEC filing.

AMR was also hit with a downgrade from S&P. According to MarketWatch, the ratings agency changed the company's "long-term ratings of B/Negative/B-3 and its subsidiary American Airlines Inc. to negative from positive. S&P also lowered AMR's short-term rating to B-3 from B-2."

AMR's shares, which traded at $40 at the beginning of 2007 now change hands at $9.62. S&P is asking, by way of its rating, whether all of the US carriers will make it through the year if fuel keeps rising and travelers cut back. It is a legitimate question.

Douglas A. McIntyre is an editor at 247wallst.com.

AMR Corporation (NYSE: AMR) stock is falling after a JP Morgan analyst downgraded the stock to "Underweight" from "Overweight." He also downgraded six other airlines, saying record oil prices will hurt profits and could potentially threaten airlines' credit ratings. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AMR.

After hitting a one-year high of $34.25 last March, the stock has hit a new one-year low today. This morning, AMR opened at $10.62. So far today the stock has hit a low of $9.68 and a high of $10.40. As of 1:00, AMR is trading at $9.70, down $0.97 (-9.1%). The chart for AMR looks neutral and improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $14 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.1% return in two months as long as AMR is below $14 at May expiration. AMR would have to rise by more than 44% before we would start to lose money.

AMR Corporation (NYSE: AMR) stock is lower today as AMR's subsidiary, American Airlines, officially opened contract negotiations with mechanics and other ground workers on Wednesday. This is generally a good thing for AMR, but is being overshadowed by soaring crude futures which are pushing fuel costs higher for airlines. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AMR.

After hitting a one-year high of $41 in January, the stock hit a one-year low of 20.28 in September. This morning, AMR opened at $21.54. So far today the stock has hit a low of $21.20 and a high of $22.00. As of 10:45, AMR is trading at $21.80, down $0.23 (-1.0%). The chart for AMR looks bullish but deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a December bear-call credit spread above the $27.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in 7 weeks as long as AMR is below $27.50 at December expiration. AMR would have to rise by more than 24% before we would start to lose money.

MAJOR PAPERS:

• Reacting to $90-plus a barrel oil prices, airlines, many of whom are beginning to see profits again, are passing along increases to passengers. Led by AMR Corporation's (NYSE: AMR) American Airlines, the largest carrier, increases per ticket are being increased about $20, according to the Wall Street Journal (subscription required).
• The UAW may not face stiff opposition among its rank and file member for a new four year labor contact with Ford Motor Company (NYSE: F), as local leaders in Detroit approved a tentative four year deal, reported the Wall Street Journal.

OTHER PAPERS:

• The New York Post reported that two fired Dow Chemical Company (NYSE: DOW) executives shopped the company to investors, according to industry consultants' affidavits filed by the company to support its claims that the execs breached their corporate duties.
• The Telegraph reported that CIBC World Markets' financial services analyst Meredith Whitney has called for Chuck Prince's successors to break up Citigroup (NYSE: C).
• Several private equity firms are competing to buy the 32% stake in Sony Corporation's (NYSE: SNE) Sony Entertainment Television currently held by Indian investors, reported the Economic Times.

AMR Corporation (NYSE: AMR), better known as American Airlines, recently announced that it will begin to "test new food for sale options," including $3 CLIF Bars, $3 Vitamin Waters, and a $5 turkey sandwich.

The Consumerist points out that, for those of you who have been living under rocks, that's a little expensive: "No offense, but according to internet grocer FreshDirect, we can have a Chocolate Brownie Energy CLIF Bar thing delivered to our house right now for $1.50. Just saying." and goes on to say that "Yes, perhaps we are cheap, but if we're going to pay $10 for cheese it won't be because we were extorted on an airplane."

Should consumers be upset about this? Absolutely not! We should be happy. If you think it's a rip-off, don't buy it! I sure as hell won't, and I doubt that the quality of my travel experience will be affected.

And for the morons who do shell out $3 for Vitamin Water: Your contributions to American Airlines' coffers are helping make airfare cheaper for the rest of us. The more dumb, overpriced crap that airlines can sell, the cheaper airfare will be. Perhaps they should try hawking shares of Overstock.com, Inc. (NASDAQ: OSTK).

Most mergers are driven by the notion, sometimes wildly mistaken, that the combination will bring both a competitive advantage. Some pairs of companies, however, seem so intuitively right for one another, no bottom-line considerations should be allowed to interfere with their matrimony. Like a hyperactive kid and a hungover salesman sharing the same flight, these two were meant to sit side by side.

Travel on airlines such as American (NYSE: AMR) has become a nightmare of long lines, pat-downs and hours spent in a space smaller than your golden retriever's home crate. On the other hand, package shipping with companies such as FedEx (NYSE: FDX) has become extremely simple, reliable, timely and inexpensive. I can't help but think that merging the two would provide us a new option. With the right size shipping box and larger drop-off boxes, why couldn't I FedEx myself to Acapulco?

Sure, the box might seem confining, but have you sat in the center seat of the back row on an AMR flight lately? The discomfort of the automated handling system would be offset by the convenience of pick-up and drop-off locations in over 220 countries. You could save money by being delivered directly to your destination at the other end, as long as someone there will sign for you. Bathrooms might be a problem, but for an answer look no further than the recent escapades of a spurned astronaut.

Barron's piece on AMR Corporation's (NYSE: AMR) American Airlines points to how investor sentiment might be changing toward the airline industry. The airlines are profitable, have huge cash positions and little debt outside of the leases for their planes.

One potential catalyst could be the spinning off of many of the industry's frequent flyer programs, similar to what Air Canada did with its Aviation Holdings frequent flyer program.

Also, as American Airlines and UAL Corporation (NASDAQ: UAUA) are getting pitched by investment bankers about spinning off assets, the supply-and-demand balance for oil and jet fuel are looking more favorable for a price decline. With demand slowing and new supplies coming to market from Saudi Arabia, the drop in fuel could be considerable.

With American having corrected from $40 and now selling for $22, and UAL Corp holding up better, but still selling for a cheap valuation, both stocks seem to have a number of catalysts in place to drive both airline stocks higher.

AMR Corp. (NYSE: AMR), parent of American Airlines, was urged by one of its top shareholders to consider "all options to enhance shareholder value" such as spinning-off American's frequent flier program, according the ' DealBook blog.

In a letter to the Fort Worth-based company, FL Group of Iceland said "a conservative analysis" of AMR
shows "there is significant hidden shareholder value to be unlocked." In particular, FL Group believes that unbundling AMR's AAdvantage ("AAD") Frequent Flier program could increase shareholder value "by more than $4 billion."

The idea isn't without precedent. As DealBook notes UAL Corp (NYSE: UAUA), the parent of United Airlines, are expected to consider spin-offs at its annual meeting this week and that Air Canada has already spun off its frequent flier plan. Shares of AMR, which have plunged 50% since January, are trading slightly higher today. But investors who have watched airlines destroy billions of dollars in shareholder value over the years shouldn't get their hopes up.

Ceylon Securities analyst Ray Neidl told Bloomberg News that AMR sees "greater value in keeping all of the parts together."

Maybe AMR will change its tune if other shareholders join forces with FL Group.

Apple (NASDAQ: AAPL) October implied volatility at 39 into Citigroup raising target to $185.

• AAPL is recently up $1.05 cents to $145.20 in pre-open trading.
  
• Citigroup Smith Barney-SBSH says: "We are raising FY08 and FY09 earnings estimates to reflect higher gross margin and lower operating expense assumptions. Our above-consensus estimates suggest a new twelve-month target of $185. We remain buyers of AAPL."
  
• AAPL is expected to report EPS in mid-October.
  
• AAPL October option implied volatility of 39 is below its 26-week average of 42 according to Track Data, suggesting decreasing price movement.

AMR Corp (NYSE: AMR) implied volatility Flat prior to weak 3Q investor Update.

• AMR closed at $24.26.
  
• Soleil Securities says: "On the heels of a somewhat disturbing mid-quarter update from AMR that was released late Friday, we are slashing earnings estimates, cutting our target price to $24 from $33, and reducing our investment rating to Hold from Buy."
  
• WTI Crude futures are down 1.13% to $80.70 according to Bloomberg.
  
• AMR October option implied volatility of 50 is near its 26-week average according to Track Data, suggesting non-directional risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.