Airline carrier
Delta Air Lines (DAL) has pulled back in recent weeks, as fears of a slowing economy may soften demand for air travel. One trader sees a further downside in the weeks ahead.
That’s based on the May $29 puts. With 35 days until expiration, 5,772 contracts traded compared to a prior open interest of 114, for a 51-fold rise in volume on the trade. The buyer of the puts paid $0.38 to make the bearish bet.
Shares recently traded just under $34, so they would need to fall about $5, or about 16 percent, for the option to move in-the-money. While Delta has a 52-week low of $27.20, it’s still a steep move for a trade with a month to play out.
The airline is still benefiting from the recovery in travel and tourism demand. Revenues jumped 42 percent over the past year.
However, profit margins have been low, and a weaker economy could mean a weaker share price going forward.
Action to take: Investors interested in the airline space may want to wait for a lower price, around the $30 range, before buying.
That will ensure investors aren’t overpaying, and can take advantage of today’s volatile market. At present, Delta does not pay a dividend.
For traders, the May puts can potentially deliver mid-double-digit returns, but look for a quick profit.
Traders may want to look at the June $30 puts. Going for about $0.80, they have a bit more time for a downswing in Delta shares to play out.
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.