Delta Air Lines, Inc. ( DAL ) rallied to a record high of $20.41 right out of the gate today, bringing its year-to-date gain to more than 70%. In the options pits, traders are anticipating an even steeper ascent for DAL after the company's turn in the earnings spotlight next week.
During the course of Wednesday's session, DAL saw 29,000 calls change hands -- more than four times its average daily call volume. For comparison, fewer than 4,000 DAL puts were exchanged.
Digging deeper, traders established new positions at the September 20 call, which saw open interest escalate by nearly 4,800 contracts overnight -- the most of any strike. Plus, 82% of the calls -- including a single block of 2,490 contracts -- crossed at the ask price, hinting at buyer-driven volume.
By purchasing the calls at a volume-weighted average price (VWAP) of $1.39, the buyers will begin to profit if DAL topples $21.39 (strike price plus VWAP) by September options expiration. From DAL's current perch at $20.39, it would take additional upside of 4.9% in order to hit breakeven, which would represent an all-time high for the stock. Should DAL retreat beneath the round-number strike by expiration, the most the buyers can lose is the initial premium paid for the calls.
Speaking of option premiums, DAL's short-term contracts are becoming more expensive as the firm's earnings date approaches. Heading into the July 24 release, the stock's Schaeffer's Volatility Index (SVI) has soared to 46% -- above 58% of all other readings of the past year.
Historically, DAL has matched or bested analysts' per-share profit predictions in five of the past six quarters. This time around, Wall Street is calling for earnings of 94 cents per share.
Technically, Delta Air Lines, Inc. has advanced roughly 95% over the past year, led into the black atop its 10-week moving average. Nevertheless, short interest crept 5.7% higher during the past month, suggesting there are still plenty of skeptics on the Street. A short-squeeze situation in the face of a solid earnings showing could add contrarian fuel to the fire.
This article by Andrea Kramer was originally published on Schaeffer's Investment Research .
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