Airline Stock Enjoys Tailwinds on New COVID-19 Vaccine Data

Put traders are targeting an AAL ceiling

Digital Content Manager
Nov 16, 2020 at 11:08 AM
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The shares of American Airlines Group Inc (NASDAQ: AAL) are up 5.2% at $12.88 at last check, after Moderna (MRNA) announced its coronavirus vaccine candidate is more than 94% effective, and that 20 million doses will be ready to ship in the U.S. by the end of the year. The news, which comes just a week after Pfizer (PFE) also released its own vaccine data, is sending travel stocks such as cruises, hotels, and airlines surging once again. 

On the charts, American Airlines stock has traded sideways for the past several months. The shares more than doubled off their May 14 bottom near $8 during a June rally to the $22 mark, but were unable to sustain those levels. Longer term, the descending 200-day moving average is still keeping a tight lid on any gains, and the equity sports a 55.6% year-over-year deficit.

Analysts are still pessimistic toward AAL, with nine of the 12 in question carrying a tepid "hold" or worse rating. However, the 12-month consensus target price of $10.62 is a 17% discount to the stock's current perch, so there is ample room for price-target hikes should the equity continue to take off.

Shorts are building their positions, too, with short interest up 10.3% in the last two reporting periods. The 172.77 million shares sold short make up a whopping 38.8% of AAL's available float, so a short squeeze could also keep the wind at the security's back.

In the options pits, calls rule the air. This is per the stock's 10-day call/put volume ratio of 3.90 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stands higher than 79% of readings from the past year. This indicates calls are being picked up at a faster-than-usual clip. Given the amount of short interest tied up in AAL, its possible some of these calls could be shorts hedging against any unexpected upside.

Drilling down to today's options activity, 95,000 calls and 55,000 puts have crossed the tape, which is double the average intraday amount. The November 11 put is by far the most popular, followed by the 13 call in the same monthly series, with contracts set to expire by the end of the week.

Now certainly seems to be an ideal time to take advantage of AAL's next move with options. The security's Schaeffer's Volatility Index (SVI) of 71% sits in the extremely low 14th percentile of its annual range. In other words, the stock sports attractively priced premiums at the moment.

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