Call players heavily targeted Delta Air Lines, Inc.
(NYSE:DAL) yesterday, amid the stock's 10.4% post-earnings
pop. However, not all of the day's call volume was of the bullish variety, as 86% of the 6,606 contracts traded at DAL's June 17 call crossed at the bid price. With open interest adding 5,723 positions overnight, it's safe to assume that a number of these contracts were sold to open.
By initiating the short calls, traders expect DAL to remain below the $17 mark through June expiration. If DAL fails to rise the 3.3% from its current perch at $16.45, the calls will expire worthless, and the speculators can pocket the initial net credit, which also represents the full potential profit. As Trade-Alert
indicated, traders on Tuesday sold the June 17 calls at a volume-weighted average price of $0.75. However, with DAL sporting an impressive 38.3% year-to-date advance, this could also be part of a larger covered-call strategy
, in which shareholders are looking to protect profits against a potential pullback.
Widening the sentiment scope reveals that option traders have been bearishly aligning themselves toward Delta Air Lines in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX, the stock's 50-day put/call volume ratio of 0.46 ranks higher than 64% of other such readings taken in the past year. In other words, puts have been bought to open over calls at a faster-than-usual clip.
Additionally, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.92 ranks in the 95th percentile of its annual range. Simply stated, short-term speculators have been more put-heavy just 5% of the time within the past year.
As touched upon, Delta Air Lines has put in an impressive performance on the charts in 2013. In fact, the stock tagged a record peak of $17.25 on March 21. However, the $17 mark has emerged as a layer of overhead resistance for the equity, and DAL has only chalked up one daily close north of it.
In today's session, Delta Air Lines is trading lower, despite receiving price-target hikes from both Sterne Agee
and Imperial Capital this morning. At last check, DAL has shed 1.6%.
This article by Karee Venema was originally published on Schaeffer's Investment Research.
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No positions in stocks mentioned.