The 25 Best October Stocks

It could be a prime time to buy call options on ALK and DAL

by Karee Venema

Published on Sep 25, 2017 at 3:07 PM
Updated on Sep 25, 2017 at 3:43 PM

Barring any big sell-offs this week, the S&P 500 Index (SPX) is pacing for a monthly gain -- a rarity, considering September is one of the weakest months for stocks. Looking ahead to October, the SPX has averaged a monthly gain of 0.9% -- near the top of the pack. Drilling down on specific names, Alaska Air Group, Inc. (NYSE:ALK) and Delta Air Lines, Inc.(NYSE:DAL) are two of the best stocks to own in October. Here's a closer look at how ALK and DAL tend to perform next month, and why it might be a good time to buy the dip on the travel shares.

best spx stocks october

Alaska Air Stock Recently Bounced from a Key Technical Level

According to Schaeffer's Senior Quantitative Analyst Rocky White, ALK stock has averaged an October gain of 9.86% over the past 10 years, and has finished the month positive eight times. Another repeat of history would be a welcome change for the shares, considering they have shed 26.1% since hitting a record high of $101.43 in March. However, the equity found a floor in the $72.25 region -- home to a 61.8% Fibonacci retracement of ALK's surge from July 2016 to March 2017 -- last seen trading at $74.81.

Options traders have been betting on a bigger bounce, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ALK's 10-day call/put volume ratio of 5.97 ranks in the 99th annual percentile. In other words, calls have been bought to open over puts at a quicker-than-usual clip.

Now seems to be a prime time to purchase premium on Alaska Air. Specifically, the equity's Schaeffer's Volatility Scorecard (SVS) of 74 indicates ALK has tended to make outsized moves, relative to what the options market has priced in.

Delta Options Traders Target Puts

Over the last decade, DAL has turned in a positive October performance 90% of the time, averaging a 12.35% gain -- the highest of any SPX stock. More recently, Delta shares bounced from the $44.60 neighborhood, which is 20% below their July 10 record high of $55.75. The security is trading down 0.5% at $48.24 this afternoon, but remains 24.4% higher year-over-year. 

Despite DAL's bullish seasonal trend, today's options traders are loading up on puts -- with more than 12,000 traded, 1.5 times the expected intraday amount. The weekly 9/29 46.50-strike, weekly 10/6 42.50-strike, and December 48 puts are most active, and it looks like new positions are being purchased here. If this is the case, the traders expect Delta Air Lines to struggle in both the short and long term.

Regardless of where the stock settles at their respective expirations, the most the options traders stand to lose is the initial premium paid. What's more, these premium buyers are striking while the iron is hot, considering the stock has consistently rewarded options buyers over the past year -- given its elevated SVS of 76.
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