Regional airliner JetBlue (JBLU) sank over 20% following earnings last week. One trader is betting that the bounce higher already will continue in the weeks ahead.
That’s based on the February 21 $7.50 calls. With 17 days until expiration, 15,516 contracts traded compared to a prior open interest of 109, for a massive 142-fold rise in volume on the trade. The buyer of the calls paid $0.18 to make the bullish bet.
JetBlue shares recently traded for about $6.70, so the stock would need to rise by about $0.80, or about 12%, for the options to move in-the-money. The strike price is under the stock’s 52-week high of $8.31.
Generally, JetBlue shares have been trending higher over the past year, but have seen some significant pullbacks along the way.
The airliner reported a slight loss last year, although revenues remained flat, thanks to strong competition in the airline sector.
Action to take: The company’s fundamentals aren’t strong, and the airline industry can be incredibly cyclical to the economy, so value investors may want to look elsewhere. Swing investors may want to grab shares for a potential gain playing out over the next few days following the earnings drop.
For traders, the February 21 $7.50 calls are well positioned for a swing higher in the coming weeks. And the calls are inexpensive enough to see high double-digit, if not low triple-digit, returns.
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.
