Options Bulls Board Southwest Stock After Earnings

Call traders are targeting weekly gains for LUV

Deputy Editor
Jan 28, 2021 at 10:37 AM
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Southwest Airlines Co (NYSE:LUV) took a trip to the earnings confessional this morning, and the airline company reported a smaller-than-expected fourth-quarter loss alongside a revenue miss. The airliner lost $3.1 billion in 2020, the first annual loss the company reported since 1972. Still, LUV was last seen up 1% to trade at $44.61, possibly enjoying some sector tailwinds today.

Like much of the travel and airline sector, Southwest Airlines stock suffered on the charts for the last 12 months, yesterday dipping to a two-month low of $43.87. Overhead, the $48.50 level has kept a lid on most rally attempts in the last three months, though the 80-day moving average has so far stepped up to contain the damage. Longer term, LUV has shed 21% year-over-year.

The options pits are home to some serious bullish activity. This is per the stock's 50-day call/put volume ratio of 3.32 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits higher than 70% of readings in its annual range, meaning long calls are being scooped up at a quicker-than-usual clip. 

That bullish sentiment is being echoed in today's options pits, as well. Already, 8,203 calls have crossed the tape, which is double the intraday average, versus 2,352 puts. The weekly 1/29 48-strike call is the most popular, and new positions are being opened there.

And for those who may be looking to jump aboard LUV with options, now looks to be an affordable time. Southwest Airlines stocks's Schaeffer's Volatility Index (SVI) of 54% sits in the 18th percentile of all other readings from the past year -- a boon for premium buyers.
 

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