Call Traders Take Action as Airline Stocks Fly Higher

Deutsche Bank has airline stocks in its bullish targets this morning, upgrading its ratings on United Continental Holdings Inc (NYSE:UAL), Delta Air Lines, Inc. (NYSE:DAL), and American Airlines Group Inc (NASDAQ:AAL) to "buy" from "hold," and increasing its price targets on all three. The upbeat analyst attention comes after UAL announced better-than-anticipated unit revenue for the second quarter. Still, data suggests options traders are optimistic, as call volume is accelerated on UAL, DAL, and AAL.

First, it should be noted that call buying on these airline stocks is nothing new. In fact, for all three, call buying has more than doubled put buying during the past three weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, call open interest easily outweighs put open interest among options set to expire within three months for each UAL, DAL, and AAL, according to the stocks' respective Schaeffer's put/call open interest ratios (SOIR). 

Diving into today's action, UAL options volume is running in the 99th percentile of its annual range, with calls trading at four times the expected intraday pace. The July 43 call is the most popular option by a long shot, but data confirms sell-to-close activity is occurring here -- meaning bulls are cashing out their winning bets. Elsewhere, traders may be buying to open positions at the July 46 call, in hopes of extended gains from UAL through the end of the week. 

While United Continental Holdings Inc (NYSE:UAL) has underperformed significantly on the charts, recently flirting with two-year-low territory, today's bull gap has the shares set to close atop their 10-week moving average for the first time since mid-April. At last check, UAL stock was up 6.5% at $45.15. 

Options volume is also soaring on DAL, with volume landing in the 99th annual percentile. Calls are outpacing puts by a more than 3-to-1 ratio, thanks to heavy volume at the July 42 call. Data confirms buy-to-open activity is taking place here, meaning traders are betting on the stock running higher before the options expire this Friday. 

Delta Air Lines, Inc.'s (NYSE:DAL) long-term technical performance is almost equally disappointing as UAL's, with the shares down 22% in 2016 at $39.52 -- even with today's 3.5% pop. Making matters worse, DAL's seems to be stopping short near its 10-week moving average, which has been pressuring the shares lower since Mid-April. Looking ahead, the airliner will report earnings Thursday morning. 

Lastly, AAL's options volume is on pace to hit a 12-month high, with roughly 123,000 calls traded, compared to just over 13,000 puts. While much of this morning's early activity was due to traders closing their now-in-the-money positions, including July 31 and 32 calls, volume has surged even higher after a massive spread trade crossed at the August 45 and 38 calls. 

American Airlines Group Inc (NASDAQ:AAL) was last seen 8.3% higher at $33.75, putting the stock well on its way for its first close above its 10-week moving average since mid-April. Still, with the company scheduled to release its second-quarter earnings results next Friday, AAL stock currently sits in a roughly 20% year-over-year hole. 

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