Shares of airliner American Airlines (AAL) have been rallying higher in recent weeks. One trader sees the potential for a move higher in the coming months.
That’s based on the November $25 calls. With 211 days until expiration, 12,293 contracts traded against a prior open interest of 375, for a 33-fold increase in volume on the contract. The buyer of the calls paid $1.33 to get into the trade.
Shares recently traded just under $20, so the stock would need to rise just over 25 percent for the option to move in-the-money. A $25 price would also leave shares close to their 52-week high of $26 per share.
The stock is down 9 percent over the past year, and the airliner is still returning to pre-Covid passenger levels, meaning the company is still unprofitable.
Action to take: Shares have started moving higher, and the company did turn a profit in the most recent quarter. With shares under 8 times forward earnings, there could be room for a further move higher from here, particularly if energy costs come off their recent highs. The stock doesn’t pay a dividend at present, however.
For traders, the calls are attractive. They’re low-cost, and have nearly six months to play out, which could fare well with the upcoming summer travel season. Traders could likely nab mid-to-high double-digit returns on the trade.
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 of the companies mentioned in this article.