Delta Air Lines, Inc. (DAL) Earnings Beat Sends Bulls to the Options Pits

Delta Air Lines, Inc. (DAL) traders are targeting call options, as the stock rallies in the wake of earnings

by Alex Eppstein

Published on Oct 13, 2016 at 12:10 PM
Updated on Oct 13, 2016 at 12:10 PM

Delta Air Lines, Inc. (NYSE:DAL) has taken off, following the company's better-than-expected earnings report and plans to limit capacity growth. At last check, the airline stock was 1.2% higher at $39.73, rewarding a recent group of option bulls. Speaking of options, DAL calls are flying off the shelves this afternoon.

Jumping right in, 41,000 call options have been exchanged, quintupling the usual intraday rate. In the lead is the weekly 10/28 39.50-strike call, which is now in the money. By purchasing these positions, the traders anticipate DAL will extend its lead over $39.50 by the close on Friday, Oct. 28, when the weekly series expires.

This is hardly a new development. Options traders have been buying to open DAL calls over puts for some time now. Take, for example, the stock's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stands at a top-heavy 1.87. Not to mention, Delta's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) checks in at 0.54, with near-the-money calls nearly doubling puts among options expiring in the next three months.

As options traders have scooped up calls, short sellers have been hitting the exits. Specifically, during the last two reporting periods, short interest on DAL plummeted an incredible 54.8%. Now, just 1.3% of the stock's float is sold short, and it would take basically one session to cover the remaining positions -- hinting at a very limited supply of sideline cash.

Why sentiment has grown so bullish toward Delta Air Lines, Inc. (NYSE:DAL) is anyone's guess. While the stock is faring well this afternoon, it has shed nearly 22% on a year-to-date basis. Not to mention, DAL's descending 160-day moving average lurks overhead, threatening to short-circuit a run higher.

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