Struggling Southwest Airline Stock Sinks Deeper on CEO Pay Cut

Sentiment on Southwest Airlines was bearish coming into today

Jake Scott
Mar 10, 2020 at 1:38 PM
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While the coronavirus outbreak continues to impact the flight sector, shares of Southwest Airlines Co (NYSE:LUV) are down 1.2%, last seen trading at $43.20. In the midst what he described as a “severe recession” for the airline industry, the firm's CEO Garry Kelly announced he was taking a 10% pay cut. This puts LUV on track for its lowest close in over three years, and its fourth straight day in the red. For the year, the equity is off 20%.

This negative price action hasn't been lost on analyst. Of the 16 covering the flight specialist, 11 sport a “hold” recommendation, while four say it’s a “strong buy,” and one lone wolf recommends a “strong sell.” 

Pessimism has gripped the options pits too, per Southwest’s 10-day put/call volume ratio of 1.77 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits in the 97th percentile of its annual range. This means that there has been a bigger appetite for these bearish bets of late. 

This bearish betting is being carried into today trading. So far, 11,000 puts have crossed the tape -- almost double the average intraday amount-- compared to 4,816 calls. There appears to be some buy-to-open activity at the January 2021 52.50-strike call, while the April 35 put is also popular. 

It should be noted that short interest has taken a dramatic plummet in the last two reporting periods, down 41.5%, though it's likely many of these bears are in profit-taking mode in light of LUV's steep selloff. The 10.61 million shares sold short now make up just 2.1% of the stock's available float. 


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