Options Bears, Shorts Pile On Ahead of Delta Air Lines Earnings

Delta put buying has picked up in the past two weeks

Managing Editor
Jan 9, 2018 at 12:50 PM
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Delta Air Lines, Inc. (NYSE:DAL) has historically been one of the best stocks to own in the first quarter, and will be kicking off the new year with a fourth-quarter earnings report before the open on Thursday. Below, we will take a look at how DAL stock is performing ahead of the report, and how options traders are speculating on the airline shares.

At last check, Delta stock is down 0.4% to trade at $54.47. From a broader perspective, DAL has picked up 20.2% in the past nine months, but has taken a breather since touching a record high of $56.84 on Dec. 21. Looking back 10 years, the airline stock has ended the first quarter higher 90% of the time, averaging a gain of 18.47%, per data from Schaeffer's Senior Quantitative Analyst Rocky White. So, if history repeats, DAL shares could be flirting with new highs again in no time.

As far as earnings reactions, the stock's post-earnings moves have been fairly modest, averaging a swing of 1.7% in either direction in the session after its last eight reports. DAL closed higher the next day after five of those reports. This time around, the options market is pricing in a bigger-than-usual 3.1% move for Friday's trading, per at-the-money implied volatility data. 

In the options pits, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is showing DAL with a 10-day put/call volume ratio of 0.92, ranking in the 96th percentile of its annual range. This suggests put buying has been accelerated compared to call buying during the past two weeks.

Echoing that, the equity's Schaeffer's put/call open interest ratio (SOIR) stands at 0.86. This reading ranks in the 98th percentile of its annual range, pointing a stronger-than-usual skew toward short-term puts over calls. Should DAL once again surge in the first quarter, an unwinding of pessimism in the options pits could be a boon for the shares.

Lastly, short interest has surged nearly 48% during the past two reporting periods, and now represents just 2% of the stock's total available float. Another first-quarter rally for Delta Air Lines stock could spook some of the new shorts into hitting the exits.

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