American Airlines Option Bull Lowers Expectations Amid Travel Ban Revision

American Airlines Group Inc (NASDAQ:AAL) call volume is accelerated

Mar 6, 2017 at 11:50 AM
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Travel stocks are trading lower today, on news President Donald Trump has just signed an executive order revising his U.S. travel ban. Against this backdrop, shares of American Airlines Group Inc (NASDAQ:AAL) are down 4.3% at $44.79. Nevertheless, call volume is accelerated in AAL's options pits, with nearly 44,000 contracts traded -- four times what's typically seen at this point in the day. What's more, just 8,200 puts have changed hands.

Drilling down, AAL's weekly 3/31 45.50- and 48.50-strike calls have seen the most attention, with roughly 10,000 contracts on the tape at each short-term option. Per Trade-Alert, this appears to be due to one speculator who sold to close the higher-strike calls and simultaneously bought to open the lower strike. In other words, she rolled her long calls down, expecting AAL to be trading above $45.50 when the options expire at the close on Friday, March 31.

More broadly, today's quicker-than-usual call volume is just par for the course. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have bought to open 28,706 calls over the past 10 trading days, versus 4,056 puts. What's more, the resultant call/put volume ratio of 7.08 is ranked just 3 percentage points from a 52-week peak.

This optimism is seen outside of the options pits, too. Despite rising more than 9% in the most recent reporting period, short interest accounts for a low 5.9% of AAL's available float. Plus, half of the 12 analysts covering the shares maintain a "strong buy" rating, while the average 12-month price target of $54.27 stand in territory AAL stock hasn't seen in two years.

This upbeat outlook comes even as AAL shares trade beneath several layers of possible resistance, including a trendline connecting a series of lower highs since early December, and a 23.6% Fibonacci retracement of American Airlines Group Inc's (NASDAQ:AAL) September-to-December surge. Plus, today's decline has the shares back below their year-to-date breakeven mark, which could work to contain any near-term rebound attempts. Should AAL stock continue to struggle, an unwinding of optimism among options traders and/or analysts, or an increase in short selling, could translate into more headwinds.

aal stock daily price chart

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