Bears Blast Airline Stocks as Sector Sells Off

Berkshire Hathaway just dropped all of its major U.S. airline holdings

Deputy Editor
May 4, 2020 at 2:53 PM
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The airline sector is reeling today, and dragging the broader market down with it, following Warren Buffet-owned Berkshire Hathaway's (BRK.A) decision to drop all of its airline sector holdings. This includes Delta Air Lines, Inc. (NYSE:DAL) and American Airlines Group Inc (NASDAQ:AAL). The news has sparked wild trading in the options pits for both DAL and AAL, and at last check, the former is down 8.7% to trade at $22.01, and the latter is off 10.2% at $9.55. 

It's no secret the two names have both grappled with the coronavirus' blow to the global economy in the past couple months. Drilling down on American Airlines first, the stock has lost over 72% in the last 12 months, and is now trading within a chip shot of its April 3 all time low of $9.09. While the security tried to distance itself from these lows last week, the 40-day moving average thwarted its attempt. 

AAL May 4

As we mentioned earlier, there is plenty of bearish speculation in AAL's options pits today. So far, 247,000 puts have crossed the tape, three times the intraday average. Most popular is the weekly 5/8 8-strike put where positions are being opened. 

This penchant for puts has been the norm for American Airlines, per the equity's 10-day put/call volume ratio of 1.48 at the International Securities Exchange (ISE), Cboe Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits in the 100th percentile of its annual range, implying puts haven't been more popular in the past 12 months. 

A look at DAL shows a similar surge in bearish bets today. So far, 106,000 puts have exchanged hands, double what's typically seen at this point. Like AAL, the weekly 5/8 contract is getting all the attention, with positions being opened at the 19- and 20-strike puts. 

Meanwhile, short interest on DAL is rolling over, down 25.9% in the last two reporting periods, despite the equity's painful 62.5% year-to-date deficit. The 22.74 million shares sold short represent just 3.6% of the stock's available float. 

There's a surprising amount of analyst optimism surrounding Delta Air Lines too. Of the 10 covering the flight concern, seven consider it a "buy" or better, while only three say "hold." Plus, the consensus 12-month price target of $35.80 is a 63.2% premium to current levels. 


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