American Airlines (AAL) is up 6 percent over the past year, about double the return of the S&P 500. One trader sees shares declining in the months ahead.
That’s based on the February 2024 $11 puts. With 178 days until expiration, 7,010 contracts traded compared to a prior open interest of 167, for a 42-fold rise in volume on the trade. The buyer of the puts paid $0.35 to make the bearish bet.
American Airlines shares recently went for about $15, so shares would need to drop $4, or nearly 25 percent, for the option to move in-the-money.
Such a drop would be further than the stock’s current 52-week low of $11.65 per share.
The airliner has grown earnings by 181 percent over the past year, but revenues have increased by just 5 percent.
A potential slowdown in airline spending, combined with higher fuel costs, could weigh on shares in the months ahead.
Action to take: Interested investors may want to hold off on buying for now, as shares are in a downtrend. A better buying opportunity would be under $13.50 per share, near the bottom of the stock’s 52-week trading range.
For traders, the February $11 puts are inexpensive and could see high double-digit returns. They may not even move in-the-money, but simply benefit from the current downtrend in shares.
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.