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Falling crude prices have been a boon for Delta Air Lines, Inc. (NYSE:DAL - 9.28) today, fueling a run on the airliner's call options. At last check, DAL has seen roughly 25,000 calls change hands -- about 10 times its average intraday call volume, and more than 24 times the number of DAL puts exchanged.
Digging deeper, we find that most of the action has centered around the January 2014 20-strike call, which has seen more than 20,000 contracts traded on open interest of fewer than 100, pointing to an influx of fresh positions. Plus, all of the deep-out-of-the-money LEAPS have crossed at the ask price, suggesting they were bought.
By purchasing the calls to open, the buyers are expecting DAL to more than double over the next year-plus. Specifically, the volume-weighted average price of the calls is $0.30, meaning the buyers will profit if DAL conquers the $20.30 level by January 2014 options expiration. If not, the investors' maximum risk is limited to the premium paid for the options.
However, bullish bets are nothing new for DAL. During the past two weeks, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open nearly 31 calls for every put on the stock. In fact, the equity's 10-day call/put volume ratio of 30.82 sits just eight percentage points from a 12-month peak, implying option buyers have scooped up DAL calls over puts at a near annual-high clip.
In the same optimistic vein, the analyst crowd has high hopes for DAL. Currently, the stock boasts eight "strong buys" and one "buy" endorsement, compared to two lukewarm "holds" and not a single "sell" rating. Plus, the consensus 12-month price target on the security stands at $15.96, representing expected upside of 78% to DAL's closing price of $8.96 on Tuesday.
At last check, the shares of DAL have tacked on 3.5%, and are poised to close the week atop their 10-week moving average for the first time since late June.
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