Put Traders Respond to Southwest Airlines' Lower Forecast

Southwest Airlines stock shed nearly 12% in three months

Deputy Editor
Aug 11, 2021 at 10:18 AM
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Southwest Airlines Co (NYSE:LUV) could be in trouble this quarter, as the airline giant just lowered its revenue and profit forecasts after an increase in cancellations, amid rising cases of the Covid-19 delta variant. Southwest Airlines said it expects a 15% to 20% decline in August operating revenue compared with August 2019, and issued its first estimation for September revenue with a 15% to 25% drop. At last check, LUV was trading flat, up less than 0.1% at $51.17.

Put activity has ramped up in response to the news. Today's options pits show puts running at triple the intraday average, with 3,746 crossing the tape in the first hour of trading. The weekly 8/13 50.50-strike put is the most popular contract, followed by the 50-strike call from the same series, with new positions being opened at both.

And that penchant for bearish bets is nothing new. In fact, the stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), stands higher than 95% of readings in its annual range, meaning puts are being scooped up at a quicker-than-usual clip.  

And for those who may be looking to jump aboard LUV with options, now looks to be an opportune time. Southwest Airlines stocks' Schaeffer's Volatility Index (SVI) of 31% sits in the extremely low 8th percentile of all other readings from the past year, meaning options players are pricing in low volatility expectations for LUV at the moment.
Southwest Airlines stock has moved lower on the charts since topping out at a three-year high of $64.75 on April 14. The 20-day moving average began to guide the shares lower starting in early June, and over the last three months LUV shed 11.8%.

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