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Delta Air Lines Option Players Aren't Spooked

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Surprisingly, traders are feeling positive about the stock.

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The shares of Delta Air Lines, Inc. (NYSE:DAL) are bucking the broad-market trend higher, to say the least, yet option traders remain optimistic. Despite nearly negating its March gains, DAL has seen around 29,000 call options change hands -- more than eight times the norm. For comparison, fewer than 5,900 Delta Air Lines puts have traded thus far.

Garnering notable attention are the April 15 and September 22 calls, which have seen around 1,900 and 7,000 contracts cross the tape, respectively. Volume has exceeded open interest at the front-month strike, and implied volatility on the September-dated call is trending higher -- both signs of new positions being created. Plus, a healthy majority of the calls are trading on the ask side, suggesting they were bought.

The April 15 calls have changed hands at a volume-weighted average price (VWAP) of $0.59, meaning the buyers will start reaping a reward if Delta Air Lines climbs back atop the $15.59 level (strike price plus VWAP) by options expiration on April 19. Meanwhile, the VWAP of the September 22 calls is $0.16, indicating a breakeven of $22.16 -- a premium of 46.8% to DAL's current share price, though the stock has six months to stage such a drastic rebound. Risk is limited to the initial premium paid for the calls.

From a broader sentiment standpoint, today's appetite for long calls runs counter to the growing trend seen on the major options exchanges. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 0.87 ranks in the 76th percentile of its annual range. In other words, option buyers have picked up Delta Air Lines, Inc. puts over calls at a faster-than-usual clip during the past two weeks.

However, those put buyers are likely celebrating today. The shares of DAL were last seen more than 7% lower, after the Atlanta-based carrier cut its guidance for quarterly passenger revenue growth, citing the "sequester" budget cuts. As such, the equity is testing a foothold atop its 50-day moving average, which contained its pullback in mid-to-late February.

This article by Andrea Kramer was originally published on Schaeffer's Investment Research.

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Twitter: @schaeffers

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No positions in stocks mentioned.
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