Airliner American Airlines (AAL) is up 12% over the past year, with half that gain coming following the company’s latest earnings report. One trader sees shares continuing higher over the coming weeks.
That’s based on the November 29 $13 calls. With 42 days until expiration, 71,983 contracts traded compared to a prior open interest of 192, for a 375-fold rise in volume on the trade. The buyer of the calls paid $0.82 to make the bullish bet.
American Airlines recently traded for just under $13, making this an at-the-money trade. Shares are still well below their 52-week high of $16.15.
The airliner’s shares popped as a rival reported strong earnings and a share buyback. That’s reflective of the view that the rest of the industry looks healthy right now.
Meanwhile, American Airlines trades at just 5 times forward earnings, and less than 0.2 times its price to sales, suggesting shares are still undervalued here.
Action to take: Shares have started to trend higher since August, and will likely keep trending higher to re-test their prior highs. At present, American Airlines does not pay a dividend.
For traders, the November 29 $13 calls are aggressive, but are inexpensive enough to see high double-digit returns or better in the coming weeks before expiration.
Less aggressive traders may want to look for a higher strike price and go a few more weeks out to take advantage of a likely year-end market rally.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.
