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Option Brief: Delta Air Lines, Inc. (NYSE:DAL) rose to a then-record high of $30.10 yesterday, after Atlantic Equities initiated coverage of the stock with an "overweight" rating. As a result, options activity soared during Wednesday's session, with 59,000 contracts changing hands -- more than double the security's average daily volume.
Most active was the February 22 strike, where 8,600 puts crossed in one large block for $0.10 per contract. Since this transaction went off at the ask price -- and translated into open interest overnight -- it's safe to assume that new bearish bets were initiated here.
In order for the trader to secure a profit from the deep-out-of-the-money (OOTM) puts, DAL must retreat below breakeven at $21.90 (strike price less the premium paid) by the close on Friday, Feb. 21. This reflects a drop of 29.6% from the stock's present perch at $31.11, as well as a level not seen since early September.
This skepticism is rather surprising, considering the airline concern has surged roughly 137% during the past year. As such, it's possible that yesterday's trader was a shareholder purchasing OOTM puts to guard against a potential pullback in the shares.
Fundamentally speaking, Delta Air Lines, Inc. (NYSE:DAL) is due to report fourth-quarter earnings before the market opens on Tuesday, Jan. 21. Meanwhile, the stock soared to new all-time peak of $31.58 this morning, following the company's positive review by FlightStats Inc. In addition, Deutsche Bank lifted its price target for DAL to $37 from $33, noting that "airlines should carry their strong positive 2013 trends into 2014."