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Is Sentiment Shifting for Delta Air Lines?

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Option traders gamble on more new highs for DAL.

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Bullish bets are ascending on Delta Air Lines, Inc. (NYSE:DAL) this afternoon, with traders scooping up calls at a rapid-fire rate. As of 12:44 p.m. EST today, the airline issue has seen roughly 30,000 calls cross the tape -- about four times its average midday call volume. For comparison, fewer than 5,100 DAL puts have traded thus far.

Grabbing the most attention has been the March 11 call, which has seen more than 10,500 contracts change hands -- mostly at the ask price, hinting at buyer-driven volume. Furthermore, implied volatility on the back-month call was last seen 1.7 percentage points higher, suggesting speculators are establishing new positions today.

By purchasing the calls to open, the buyers expect DAL to continue its ascent over the next couple of months. More specifically, the calls crossed at a volume-weighted average price (VWAP) of $2.71, meaning the traders will break even if DAL topples the $13.71 level (strike plus premium paid) -- just a hair's breadth from its new two-year peak of $13.65, tagged earlier today.

Widening our sentiment scope, we find that today's appetite for bullish bets runs counter to the growing trend. The stock's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 0.86 -- above 83% of all other readings of the past year. Or, in simpler terms, option buyers have picked up DAL puts over calls at a quicker-than-usual step during the past couple of weeks.

However, today's change of hearts in the options pits is likely due to a bullish brokerage note. This morning, Goldman Sachs upped its opinion on the shares to "buy" from "sell," citing cost-cutting efforts and rebounding traffic internationally. As such, DAL was last seen 1.2% higher in the $13.27 neighborhood, after hitting the aforementioned peak of $13.65.

Delta is scheduled to take the earnings floor on Tuesday, January 22.

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

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