Skepticism Sets In on Delta Air Lines, Inc. (DAL) Ahead of Earnings

Delta Air Lines, Inc. (DAL) will report earnings ahead of the bell next Tuesday

Jan 16, 2015 at 11:00 AM
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Put players have been active on Delta Air Lines, Inc. (NYSE:DAL), as the company prepares to tell all in the earnings confessional ahead of next Tuesday's open. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the equity's 10-day put/call volume ratio of 0.53 ranks in the bearishly skewed 64th percentile of its annual range.

Even more telling of this put-skewed trend is DAL's Schaeffer's put/call open interest ratio (SOIR) of 0.75, which ranks higher than all other readings taken in the past year. Simply stated, short-term speculators are more put-heavy now than at any other point over the last 12 months.

In the February series of options, peak put open interest is found at the 45 strike, where 3,912 contracts reside. According to data from the ISE, CBOE, and PHLX, the majority of the contracts initiated here in recent months have been of the buy-to-open variety. In other words, traders expect DAL to settle south of $45 at the close on Friday, Feb. 20 -- when the options expire -- perhaps sparked by a post-earnings plunge.

Historically speaking, DAL has tended to make upside moves in the wake of its earnings report. Over the past eight quarters, specifically, DAL has averaged a single-session post-earnings gain of 4.3%. This time around, the options market is projecting in a bigger move of 5.9%, and considering the weekly 1/23 45-strike call is pricing in higher implied volatility (IV) than the weekly 1/23 45-strike put (52.2% vs. 53.3%), it appears the action is expected to resolve to the downside.

Meanwhile, those currently purchasing pre-earnings bets on DAL are willing to pay a pretty penny. The stock's 30-day at-the-money IV of 43.1% ranks in the 94th percentile of its annual range, meaning short-term options are more expensive than usual.

On the charts, Delta Air Lines, Inc. (NYSE:DAL) has been a long-term standount, and is up 45% year-over-year to trade at $45.00. This morning, however, the stock has edged 0.1% lower, despite a price-target hike to $60 from $58 at Barclays -- territory yet to be charted -- which also underscored its "overweight" rating.

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