Unusual Options Activity: American Airlines (AAL)

Shares of American Airlines (AAL) have recently slumped to a six-month low, having lost nearly one-third of their value since July. One trader is betting on a further decline in the weeks ahead.

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  • That’s based on the October 27 $11.50 puts. With 29 days until expiration, 20,041 contracts traded compared to a prior open interest of 728, for a 28-fold rise in volume on the trade. The buyer of the puts paid $0.24 to make the bearish bet.

    Shares recently dropped to about $12.70, so they would need to drop about $1.20, or nearly 10 percent more, for the trade to move in-the-money.

    Such a move is possible in today’s increasingly volatile market and amid rising interest rates.

    While customer demand for air travel is holding steady near pre-pandemic levels, rising energy prices could eat into any profitability. Airline companies work to hedge their fuel costs, but do no do so 100 percent of the time.

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  • Action to take: Investors should hold off for now. The timing isn’t quite there to go long on airline stocks right now.

    For traders, the October puts are reasonably priced and positioned for further downside in the coming weeks.

    Even if the overall market starts to trend higher, rising oil prices could continue to weigh specifically on airlines. That could lead to a high-double-digit return if the trade plays out well.


    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.


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