Bullish Options Traders Fly to American Airlines Group Inc, Delta Air Lines, Inc.

American Airlines Group Inc (NASDAQ:AAL) and Delta Air Lines, Inc. (NYSE:DAL) are seeing increased activity in the options pits

by Alex Eppstein

Published on Oct 11, 2016 at 12:24 PM

Airline stocks are on the move this afternoon amid a variety of headlines. Among the transportation names making headlines are American Airlines Group Inc (NASDAQ:AAL) and Delta Air Lines, Inc. (NYSE:DAL), which have also seen some notable options trading activity.

Starting with AAL, the airline forecast better-than-expected third-quarter profit margins and revenue, but also reported a year-over-year dip in its September passenger load factor. Credit Suisse responded to the company's update, increasing its price target to $36 from $34, while Wolfe Research bumped its price target to $46 from $45, though the shares were last seen 0.3% lower at $38.76.

AAL's call options are taking off, as well, at 1.6 times the usual intraday rate. According to Trade-Alert, buy-to-open activity may be taking place at the January 2017 38-strike call, which is the stock's second-most-active option. If true, this would be more of the same for AAL. Based on data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.15 calls for every put during the last 20 sessions.

Technically, American Airlines Group Inc has fared well. The shares bottomed below $25 in late June, but have since soared nearly 56%. Earlier, the stock came within a penny of the round $40 mark, which hasn't been toppled since late April.

Elsewhere, DAL is also lower, down 1.7% at $39.08. The stock is buckling under a pair of price-target cuts at Credit Suisse (to $48) and Wolfe Research (to $47). And, overall, it's been a fairly dismal year for the airline, with the shares dropping close to 23% in 2016.

Options traders may be betting on a short-term bounce, though. Calls are being exchanged at 1.5 times the usual intraday clip right now, and more than three times the pace of puts. Plus, it looks like speculators are buying to open the weekly 10/14 41.50-strike call, counting on DAL to muscle above $41.50 by Friday's close, when the series expires -- perhaps hoping that the stock's seasonal trend higher will kick in.

From a contrarian perspective, though, Delta Air Lines, Inc. could be a in trouble. Eighty percent of analysts rate the shares a "buy" or better, without a single "sell" opinion on the books. If the stock fails to turn higher, another round of bearish analyst notes could be around the corner.

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