Regional airliner Alaska Air Group (ALK) had a massive return in 2024, with shares rallying over 70%. One trader sees a pullback in the weeks ahead.
That’s based on the February $57.50 puts. With 43 days until expiration, 14,825 contracts traded compared to a prior open interest of 145, for a massive 102-fold rise in volume on the trade. The buyer of the puts paid $0.88 to make the bearish bet.
Alaska Air Group shares recently traded for about $65.50, so shares would need to drop by about $7, or just over 12% for the option to move in-the-money. Shares recently hit a 52-week high of $67.73, but show signs of slowing down.
Travel trends have been strong over the past year, and Alaska has managed to grow revenues by 8%. Overall earnings have expanded by a hefty 70%.
While shares trade at about 10 times forward earnings, profit margins remain thin at just over 2%. A slowing economy or slowdown in travel could impact shares.
Action to take: Interested investors can likely see a pullback in the coming weeks. The recent chart pattern looks like a weak head and shoulders, which points to potential downside in the weeks ahead.
For traders, a downside bodes well for the February $57.50 puts. The option is inexpensive enough to see mid-to-high double-digit returns in the coming months.
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.
