Why These 3 Airline Stocks are Flying South

JetBlue Airways Corporation (JBLU), Southwest Airlines Co (LUV), and Delta Air Lines, Inc. (DAL) are among the airline stocks hitting sector headwinds

by Alex Eppstein

Published on Apr 26, 2016 at 12:53 PM

Airline stocks are flying south today, after JetBlue Airways Corporation's (NASDAQ:JBLU) hot-and-cold earnings report. On the one hand, the company's per-share profit topped estimates; on the other, the firm expects unit revenue for April to fall 12.5% year-over-year and corporate travel demand has been no better than flat. JBLU isn't the only airline stock hitting turbulence. Sector headwinds are also pressuring Southwest Airlines Co (NYSE:LUV) and Delta Air Lines, Inc. (NYSE:DAL), and we'll explore matters more closely below -- including how options traders have positioned themselves on the airline stocks.

JBLU is down 1.8% at $19.99. Longer term, the stock has been moving sideways in the $19-$21 zone since early March, and has surrendered 11.7% year-to-date. Not surprisingly, options traders have been very bearish toward JetBlue Airways Corporation. The stock's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.65 ranks in the high 86th percentile of its annual range.

LUV has dropped 1.52% to trade at $46.29, but in recent months has really taken flight. Relative to its early February lows near $34, the stock has soared 36%. This technical tenacity has had short sellers running for cover. During the last two reporting periods, short interest on Southwest Airlines Co has plummeted 37.4%, and now represents less than 2.3% of its total float. Meanwhile, short-term options traders have grown extremely call-focused, per LUV's Schaeffer's put/call open interest ratio (SOIR) of 0.30 -- an annual low. In other words, calls more than triple puts among options with a shelf-life of three months or less.

Finally, DAL is down 1% at $43.48, and has lost 14.2% so far in 2016. On top of that, the shares recently fell below a long-time level of support. For that reason, the stock appears to be vulnerable to potential downgrades. After all, seven of eight analysts tracking Delta Air Lines, Inc. rate it a "buy" or better -- with not a single "sell" opinion to be found. Short-term options traders have gravitated toward calls over puts, as well, per the stock's SOIR of 0.32 -- registering in the low 29th percentile of its annual range.

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