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Delta Air Lines Attracts Longer-Term Bulls

DAL sees an upswing in March 2013 call activity

by 10/1/2012 10:31 AM
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Delta Air Lines, Inc. (NYSE:DAL - 9.25) has been ambushed by bullish speculators lately, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, the equity sports a 10-day call/put volume ratio of 8.73, confirming that traders have bought to open nearly nine calls for every put during the past two weeks. This ratio arrives in the 76th percentile of its annual range, reflecting a stronger-than-usual appetite for calls over puts.

This optimistic trend also carried over into Friday's session, as roughly 26,000 calls crossed the tape, nearly tripling the equity's average daily call volume. By comparison, only 3,558 puts were exchanged. The bulk of the trading occurred at the March 2013 11 strike, where nearly 20,100 calls changed hands at a volume-weighted average price (VWAP) of $0.51 per contract. A couple of large blocks traded at the ask price, suggesting they were purchased. Meanwhile, open interest at this strike rose by 19,460 contracts over the weekend, signaling that most of the volume was made up of new positions. This option is now home to peak call open interest of 30,232 contracts. By buying these calls to open, traders are counting on the stock to muscle north of $11.51 (strike price plus average net debit) by March expiration.

Most of the analysts following the airliner seem to share this faith in DAL, as eight "strong buys" and one "buy" endorsement have been handed out, compared to two "holds" and zero "sell" recommendations. What's more, Thomson Reuters pegs the security's average 12-month price target at $15.54, representing a hefty premium of almost 70% to Friday's closing price of $9.16.

DAL has put forth a commendable performance on the technical front, gaining about 22% during the past 52 weeks, and more than 14% year-to-date. The stock has also outpaced the broader S&P 500 Index (SPX) on a relative-strength basis over the past month. On the charts, the security is hovering just above its 50-day moving average, a trendline that has not been surmounted on a daily closing basis since mid-July.

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