Bearish Traders Could Hold the Key for More Delta Air Lines Stock Gains

Delta Airlines shares are continuing to pop on the charts, but put buying has been popular

Research Dept.
Jun 6, 2017 at 11:30 AM
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Travel stock Delta Air Lines, Inc. (NYSE:DAL) is in a strong technical position, and looks poised to go higher. The shares are up nearly 21% year-over-year, and just last week made a decisive move above their year-to-date breakeven point and the $50.76 level -- half their all-time peak. After taking a sharp bounce of its 200-day moving average in April, DAL is now staring down its 52-week high, and an unwinding of pessimism could help the stock take out this milestone.

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One group that could provide an upside catalyst for Delta is short sellers. These bears have continued to target the shares, with short interest more than doubling since its October low -- yet DAL shares have continued to rally. This points to underlying technical strength from the equity, and also suggests the shares could benefit from a short-squeeze scenario.

Not only that, but options traders have been unusually bearish, with DAL’s 10-day put/call volume ratio of 0.95 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) topping 98% of readings from the past year. An exodus of these doubters could also spark additional upside. Plus, oil prices have been falling, with large speculators unwinding their long positions, which should act as a boon to the airline sector.

Finally, it’s a good time to target DAL options. This is based on the stock’s 30-day at-the-money implied volatility of 26%, which ranks in the low 12th annual percentile, and falls in line with historical volatility levels.

Subscribers to Schaeffer's Weekend Trader Series options recommendation service received this DAL commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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