3 Airline Stocks Soaring as Crude Oil Slumps

American Airlines Group Inc (NASDAQ:AAL), Delta Air Lines, Inc. (NYSE:DAL), and United Continental Holdings Inc (NYSE:UAL) are higher, as crude oil futures sell off

by Karee Venema

Published on Sep 27, 2016 at 3:10 PM

Crude oil futures have taken a nosedive today -- with November-dated West Texas Intermediate crude futures down 2.8% at $44.66 per barrel -- as hopes fade that global oil producers will reach an output agreement at this week's informal meeting in Algeria. A downwardly revised fourth-quarter price forecast from Goldman Sachs is also weighing on oil prices, and subsequently smacking energy stocks. On the flip side, oil's slide is helping to buoy airline stocks, with American Airlines Group Inc (NASDAQ:AAL), Delta Air Lines, Inc. (NYSE:DAL), and United Continental Holdings Inc (NYSE:UAL) all trading higher.

AAL, for instance, was last seen up 3.1% at $36.04. Nevertheless, the stock's rally appears to be running out of steam near the $36 mark -- a level that served as support in the latter half of August, and represents a 50% Fibonacci retracement of AAL's Nov. 3 high at $47.09 and June 27 low at $24.85.

Options traders, meanwhile, have been shown a preference for long calls over puts in recent weeks -- shifting from a longer-term trend toward puts. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.72 calls for every put in the past 20 sessions.

Today, calls have the lead over puts in a relatively low-volume session. Most active is American Airlines Group Inc's weekly 10/7 36-strike call, where it seems safe to assume new positions are being purchased. In other words, call buyers expect AAL to settle north of $36 at next Friday's close, when the weekly options expire.

DAL, meanwhile, has jumped 2.7% at $39.05 amid sector-wide tailwinds, as well as on reports the company is looking to buy planes with more seating capacity. Longer term, the stock has struggled in the $39.20-$39.50 region since an early August bear gap, and earlier topped out at an intraday peak of $39.18.

In addition, DAL could see this area continue to create short-term headwinds, given the lofty amount of call open interest residing at near-the-money strikes in the front-month series. Specifically, 10,541 contracts are currently housed at Delta Air Lines, Inc.'s October 39 call, while the round October 40 call is home to peak open interest of 17,364 contracts.

UAL was last seen up 2.1% at $50.49. The shares have now added nearly 35% since hitting an annual low of $37.41 in late June. More recently, the stock has staged several successful tests of $50, after soaring north of this round-number mark in the wake of a well-received executive shakeup in late August.

In the options pits, call buying has been picking up the pace in recent weeks. At the ISE, CBOE, and PHLX, United Continental Holdings Inc's 10-day call/put volume ratio has surged to 4.20 from 1.13 over the past two weeks, and now ranks in the 91st annual percentile. In other words, calls have been bought to open over puts at a near-annual-high clip.

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