Southwest Airlines Co (LUV) Stalls Out Near Round-Number Resistance

Southwest Airlines Co (LUV) continues to meet turbulence at the $40 mark

Oct 11, 2016 at 11:48 AM
facebook twitter linkedin


Southwest Airlines Co (NYSE:LUV) is on the move after the company unveiled its September traffic report. In addition, LUV stock received a mixed bag of brokerage attention. Bernstein, for instance, initiated coverage on the stock with an "outperform" rating and set its price target at $51, while Credit Suisse raised its price target to $52 from $48. Wolfe Research, meanwhile, cut its price target on LUV to $55 from $56. After a brief trek into the red in early trading, LUV was last seen up 0.1% at $39.82.

More broadly, LUV has had a tumultuous year -- down 7.5% since the beginning of 2016, and dropping 17% since hitting its year-to-date high of $48 in April. What's more, rebound attempts since late July have fizzled near the round $40 level -- with this area working to contain today's upside, as well.

In the option pits, LUV sports a Schaeffer's put/call open interest ratio (SOIR) of 0.47, which sits in the bottom 37th percentile of its annual range. In other words, traders are more call-skewed than usual toward options expiring in three months or less, and an unwinding of the hedges related to these bets could act as headwinds for the airline in the near term.

Meanwhile, short sellers have been exiting their positions, with LUV's short interest dropping 13.5% over the last two reporting periods. These bearish bets now account for a low 2% of LUV's float, and it would take just two days for traders to cover these positions, at the stock's average pace of trading -- leaving limited sideline cash available to help fuel any future rally attempts.

Finally, analysts are mostly upbeat toward the underperformer. Heading into today's trading, seven rated LUV a "strong buy," while six others named the stock a tepid "hold." Should the shares continue to struggle against the round $40 mark, a round of negative analyst attention could push Southwest Airlines Co (NYSE:LUV) even lower.

Find out where the Dow lands right after the closing bell. Sign up now for Schaeffer's Market Recap

 

If you are not making money with options, you aren’t buying options like this…

There is no options strategy that more perfectly approaches trading the fastest moving and most volatile stocks available in the marketplace than this one. In fact, there is no strategy that better utilizes put options for optimal returns and a real trading edge over other traders in the exact same market. New options traders fail out at an incredible rate without proper trade research, execution timing, and option picking. Capitalize on Schaeffer’s 100+ years of options trading excellence with the most coveted product launch in company history. Don't waste another second... join us right now before the next round of trades are released!

 


 


 
Special Offers from Schaeffer's Trading Partners