Short Interest Hits All-Time High on Spirit Airlines

SAVE is running into its historically bearish 320-day moving average

Jul 19, 2018 at 12:46 PM
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Spirit Airlines, Inc. (NYSE:SAVE) is set to unveil second-quarter earnings a week from today, and the company may have to deal with heightened expectations thanks to recent strength out of the sector. The stock was last seen trading down 1.2% $40.53, stuck below of a series of lower highs from the past two years. Plus, it recently ran into the 320-day moving average after a lengthy stretch below it, and SAVE shares have averaged a 10% loss a month after the previous four times times this type of technical signal has flashed, according to Schaeffer's Senior Quantitative Analyst Rocky White. 

save shares

Meanwhile, SAVE stock fell almost 6% the day after earnings last quarter, and following the July release last year the shares plummeted 18%. Overall, the equity has averaged a day-after-earnings swing of 4.6% over the past two years, and the options market this time around hasn't deviated its expectations much from that mark, with implied volatility data pricing in a 6.8% earnings move for Spirit.

In the options pits, call buying has dwarfed put buying 2,548 contracts to 216 during the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The biggest increase in open interest took place at the July 37.50 call, followed by the September 40 call.

There's a chance this preference for calls is due to SAVE's short interest levels. Specifically, short interest on the stock rose another 32% in the past two reporting periods to a record high of 11.24 shares. Or, put differently, short sellers hold 16.3% of the equity's total float. As such, some long calls may be serving as hedges for the short sellers.

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