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Bearish Speculation Surges in Delta Air Lines, Inc. (DAL)

Bears are creeping into DAL's options pits

by 5/31/2013 12:33 PM
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Bearish sentiment toward Delta Air Lines, Inc. (NYSE:DAL) -- currently docked at $18.35 -- is on the rise. In fact, short interest on the stock rose more than 26% to nearly 15 million shares during the last two-week reporting period. Moreover, today's bears are eating up DAL's puts at a rate five times the intraday norm and almost 10 times the number of calls traded. More specifically, 15,000 puts have crossed so far, compared to only 1,530 calls.

Most of this activity has taken place at DAL's July 15 put, where more than 10,100 contracts have changed hands at a volume-weighted average price (VWAP) of $0.25. Almost all of the contracts went off at the ask price, implied volatility has increased by 3.6 percentage points, and volume far exceeds open interest, collectively pointing to buy-to-open activity.

The put buyers anticipate a 19.6% slide for DAL, which has climbed 54% year-to-date. Specifically, they expect the stock to finish below the breakeven price of $14.75 (strike price less the VWAP) by the close on July 19, when back-month options expire. However, if DAL stands its ground above the 15 strike, the most the put buyers risk losing is the initial premium paid. Given how far out-of-the-money this relatively short-term strike is, it could be the work of DAL shareholders looking to protect recent gains via the inexpensive hedge of a long put option.

Broadening the scope, during the past 10 sessions, traders bought to open more than two calls for every put, according to DAL's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put ratio of 2.54. However, this ratio ranks in the 37th percentile of its annual range, meaning the pace of call buying is actually slower than usual.


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