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Similar to sector peer JetBlue Airways Corporation (NASDAQ:JBLU), call activity soared on Delta Air Lines, Inc. (NYSE:DAL) yesterday, as the stock tagged a new record high of $24.10. In the options pits, roughly 86,000 contracts changed hands -- more than six times the security's typical daily call volume, and over four times the number of puts traded. However, digging deeper into the data reveals that a hefty portion of Tuesday's call activity wasn't of the overtly bullish variety.
Jumping right in, the December 26 strike saw 56,727 calls cross the tape -- including two large blocks that traded near the bid price for $0.81 each. Meanwhile, open interest at this strike skyrocketed overnight, signaling the initiation of new positions. In other words, it's possible that one trader was responsible for selling to open a number of these out-of-the-money calls yesterday.
In this scenario, the speculator is counting on DAL to stay south of the $26 level through December expiration. This would cause the options to expire worthless, and allow the call seller to pocket the initial premium collected, which also represents the maximum profit on the play. This activity could also denote a covered-call strategy, in which case the trader may actually be a shareholder looking to generate some income on his position, or pick up a bit of downside protection in the event of a pullback.
At last check, the delta for this call was docked at 0.31, suggesting it has a nearly 1-in-3 chance of moving into the money ahead of the close on Dec. 20. Should this occur, the speculator could be on the hook to deliver the shares at $26 each, no matter how high DAL should rally. His out-of-the-money bet is safe for the moment, though, as the stock is currently off 0.8% to hover at $23.56.
Delta Air Lines, Inc. (NYSE:DAL) has been an overachiever on the technical front, with the security nearly doubling in value so far this year, and besting the broader S&P 500 Index (SPX) by more than 19 percentage points during the most recent four-week time frame. It should also be noted that the airliner is tentatively scheduled to report third-quarter earnings between Oct. 21 and Oct. 25, and has topped or matched consensus bottom-line estimates in six of the past eight quarters.
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