Delta Air Sees Financial Giants Pile on Bullish Options Ahead of Earnings

Luzi Ann Santos joined discussion · Jul 10 13:38

$Delta Air Lines (DAL.US)$ options are seeing the heaviest trading volume since May as financial giants pile on positions that could pay off should the share price rebound after the company reports second quarter earnings Thursday.

Total volume rose to about 150,100 contracts as of 2:36 p.m. in New York from about 70,130 a day earlier. The open interest, or the tally of outstanding contracts, are heavily concentrated on call options that give the holders the right to buy Delta shares at $55, which could signal investor optimism that the stock could rebound from Tuesday's price of $46.52.

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On average, analysts expect Delta to report adjusted revenue of $15.4 billion for the three months ended June, climbing from $14.6 billion a year earlier, according to estimates compiled by Bloomberg. Rising costs are seen shaving profit, with the adjusted earnings expected to drop to $2.38 a share for the second quarter, down from $2.68 a year earlier.

"Higher wages and fuel costs heighten the effect of lower fares on Delta's 2Q earnings as capacity continues to rise," Bloomberg Intelligence analysts including Melissa Balzano wrote in a note dated June 20. "Rising wages, especially for pilots, may lift labor expenses 11.8% from a year ago, trimming margin by 140 basis points."

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Still, Delta, along with $United Airlines (UAL.US)$, could perform best among their peers, according to the analysts. That's because "premium and long-haul international fares hold up better than economy short- and medium-haul flights both domestically and to Latin America," the analysts said.

Almost a quarter of the 371,340 outstanding call contracts are in options that give the holder the right to buy Delta shares at $55 across the 17 expiration dates, data compiled by moomoo showed. Delta holders are positioning further out, with the majority of those calls expiring on Aug. 16 and Sept. 20.

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That's in stark contrast to the most popular options like Nvidia, whose most active options are those with strike prices near the current stock price expiring soon. In this case, these are the $135 calls expiring in two days.

Delta has seen two monthly net outflows, spurring a slump in shares from a four-year high. After a 13% decline from that peak, eight of the 15 technical indicators tracked by moomoo now show the stock could be oversold could turn bullish.

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