2 Travel Stocks Flashing Buy

Options for both DAL and BKNG are pricing in low volatility expecations

by Emma Duncan

Published on Mar 6, 2019 at 3:39 PM
Updated on Mar 13, 2019 at 8:22 AM

Travel names Delta Air Lines, Inc. (NYSE:DAL) and Booking Holdings Inc (NASDAQ:BKNG) are making notable moves, just two of multiple travel stocks in focus today. Below, we'll dive into how DAL and BKNG have been faring on the charts, and see why history indicates now may be a good time to bet on the shares' next leg higher.

Delta Moving Average Could Be Buy Signal

DAL has been struggling on the charts over the past year, seeing a significant plunge after hitting a peak of $61.32 in late November. The shares are currently trading near their year-to-date breakeven mark and, digging deeper, the stock just came within one standard deviation of its 40-month moving average, after an extended period above the long-term trendline.

This signal has flashed four other times in the last 15 years, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. The security was positive 100% of the time three months after these signals, averaging a 15.8% gain. At DAL's current perch of $49.62, a lift of the same value would place the stock near $57.45.

Monthly DAL with 40MA Feb 14

Put options traders have been favoring the travel concern. This is per Delta stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stands at 1.02, in the 88th percentile. In other words, puts have been purchased over calls at a faster-than-usual clip.

Plus, option premiums look attractively priced at the moment. Specifically, DAL's Schaeffer's Volatility Index (SVI) of 26% stands in the 26th annual percentile of all other readings from the past year. This means that near-term options are pricing in relatively low volatility expectations.

Booking Stock Edges Higher

Recently, Booking stock has struggled, just last month suffering a drastic post-earnings bear gap -- which sent its year-over-year deficit to a steep 15%. However, the shares are edging their way higher in today's trading, last seen up 0.5%, and may be in store for an even bigger lift.

Booking stock just came within one standard deviation of its 40-month moving average, after an extended period above the trendline. This signal has flashed five other times over 15 years, according to White's data. The security was positive 100% of the time three months after these signals, averaging a 21.2% gain. At the stock's current perch of $1,759.38, a similar surge would place it at $2,132.37. 

Monthly BKNG with 40MA Feb 14

Taking a look at options data, BKNG's Schaeffer's put/call open interest ratio (SOIR) of 0.83 lands in the 8th percentile of its annual range. In other words, near-term options traders are more call-biased than usual right now. Further, near-term options are pricing in relatively low volatility expectations, with the travel name sporting an SVI of 18%, just 8 percentage points from an annual low.


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