Popular LUV Option Strike in Focus After RASM Update

The $50-$55 range will be interesting to watch for LUV in the coming trading days

Jun 19, 2019 at 10:16 AM
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Southwest Airlines Co (NYSE:LUV) just announced an upwardly revised revenue per available seat mile (RASM) forecast for the second quarter, though the shares of the travel concern are slightly lower this morning at $51.07. Meanwhile, options traders will be watching the stock closely, as they have a decidedly put-skewed stance on LUV.

Specifically, the security's Schaeffer's put/call open interest ratio (SOIR) stands at 1.70, showing put open interest among options expiring within three months almost doubles call open interest. What's more, this reading ranks in the 88th annual percentile, showing such a put-heavy posturing is rare. This skew is due to heavy open interest at the June 50 put, where 18,303 contracts sit, more than doubling the positions at the next closest contract. Obviously, this option is set to expire at the close this Friday, June 21.

Looking closer at the charts, not only is the airline stock trading just above this key strike, but it's siting right below the 200-day moving average, a trendline that acted as a ceiling in April and May, along with the 320-day moving average. Interestingly, the shares are also trading right in line with their 50-day moving average.

Such a setup could be suggesting a large move is on the horizon, as these trendlines serve as support or resistance. LUV has already shown a tendency to make bigger moves than options traders were expecting in the past year, based on its Schaeffer's Volatility Scorecard (SVS) of 85 out of a possible 100.

Data does suggest it's a good time to speculate on Southwest. The equity currently boasts a Schaeffer's Volatility Index (SVI) of 24%, which ranks in the 21st annual percentile, showing relatively muted option premiums at the moment.

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