Short-term bulls overwhelmed Delta Air Lines, Inc.
(NYSE:DAL) options pits yesterday. Of the 16,000 calls traded throughout the course of the session, 5,381 crossed at the near-the-money June 19 strike for a volume-weighted average price (VWAP) of $0.23. The majority of the contracts went off at the ask price, implied volatility ticked higher, and open interest added 1,996 positions overnight, collectively insinuating heavy buy-to-open activity.
For this play to be profitable at expiration, DAL has to march north of the breakeven price of $19.23 (strike price plus the VWAP) -- which is $.20 below its all-time high of $19.43 reached on May 15. If the stock fails to make the 2.6% step by the close on June 21, when front-month options expire, yesterday's call buyers will stand to lose the initial premium paid per contract.
This anticipated leap is possible, considering since hitting its annual bottom of $8.42 on September 4, DAL has rebounded an impressive 123% to its current price of $18.75. Moreover, the option's delta currently rests at 0.39 or 39%, representing a 2-in-5 chance of finishing in the money by expiration.
In DAL's options pits overall, speculators during the past 50 sessions have bought to open more than five calls for every put
, according to the stock's International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) 50-day call/put volume ratio of 5.38. This ratio ranks in the 84th percentile of other such readings taken within the last year, meaning speculator's appetite for calls over puts has been healthier than usual as of late.
Outside the options pits, bullish sentiment for Delta Air Lines runs high, as well. In fact, seven of the nine analysts weighing in on the stock endorse it as a "strong buy," while only two give it a "hold" or worse recommendation. Likewise, analysts' consensus 12-month price target stands at $22.29, meaning the brokerage bunch expects DAL to climb to new heights within the next year.
This article by Milissa Hudepohl was originally published on Schaeffer's Investment Research.
Below, find some more great content from Schaeffer's Investment Research:
Trading 101: Protective Puts
Daily Game Plan – Chop Chop
Delta Air Lines, Inc. (DAL) Bulls Prepare for Flight
Fifth Third Bancorp (FITB) Strategist Expects Shares to Stick to $18
No positions in stocks mentioned.