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Delta Air Lines, Inc. (NYSE:DAL) is bucking the broad-market trend lower this afternoon, up 0.7% at $24.37. In fact, earlier in the session, the airline issue tagged a fresh all-time high of $24.77, as traders celebrate the latest passenger revenue figures. Nevertheless, DAL puts are flying off the shelves at a rapid-fire pace, suggesting option players are gambling on a short-term descent, or that shareholders are bracing for some potential turbulence.
Around midday, DAL has seen roughly 14,000 puts cross the tape -- nearly three times the norm. Most popular is the weekly 10/11 23.50-strike put, where more than 6,800 contracts have changed hands at a volume-weighted average price (VWAP) of $0.17. What's more, most of the puts traded on the ask side of the aisle, and volume exceeds open interest, pointing to buy-to-open action.
As alluded to earlier, the put buyers have one of two motives: to profit from or to hedge against a short-term decline for DAL. In the case of the former, the buyers will begin to make money if DAL breaches $23.33 (strike price minus VWAP) before the close on Friday, Oct. 11, when the options expire. Risk is limited to the initial premium paid for the puts, should the shares remain north of the strike.
In the case of the latter, the traders merely purchased the puts to "insure" their DAL shares. More specifically, should DAL violate the strike within the next few sessions, the traders can unload their shares for $23.50 apiece -- a premium to what they'd get on the Street. Their primary goal, as with any insurance-policy holder, is for everything to remain rosy, and for DAL to extend its quest for new highs.
Technically speaking, Delta Air Lines, Inc. (NYSE:DAL) has more than doubled in 2013, outperforming the broader S&P 500 Index (SPX) by 22 percentage points during the past three months. The airliner is also doing well off the charts, reporting a year-over-year 5.5% increase in September passenger revenue.
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