The threat of rising fuel prices hasn't slowed Delta Air Lines, Inc. (NYSE: DAL ) one bit. While 2018 has been volatile for Delta stock, the shares remain in a strong uptrend that began back in July 2016. The company has first-quarter earnings on tap next week, providing an opportunity for bullish DAL stock investors.
On Tuesday, Delta basically announced that it was going to beat consensus earnings targets. According to Delta , first-quarter revenue growth will arrive near the high end of its forecast, up 5% year-over-year. Delta also backed it's earnings forecast for 65-to-75-cents-per-share and said that capacity rose 3% for the quarter.
Click to Enlarge However, the bullish announcement has largely been buried under a deluge of data breach headlines . News of the cyber attack has overshadowed Tuesday's first-quarter update, but that could be a boon for bullish Delta stock traders.
While investors react to negative financial headlines, the sentiment backdrop for Delta stock remains largely bullish. Specifically, Thomson/First Call data reveals that 18 of the analysts following Delta stock rate the shares a "buy" or better.
Additionally, the 12-month price target rests at $73, well above Delta's current trading range near $54. That's plenty of room for follow-through buying in the wake of next week's quarterly report.
Turning to DAL stock options activity, we find a healthy degree of pessimism for the shares. Currently, the April put/call open interest ratio arrives at 0.83, with puts nearly on par with calls among front-month options. Peak put OI, however, rests at the in-the-money $55 strike, lessening the sentiment impact of these puts.
Overall, April implies are pricing in a potential post earnings move of about 5.5% for Delta stock. This places the upper bound near $57, while the lower bound lies at $51. A post-earnings rally could push DAL back above short-term resistance near $57. A downside move, on the other hand, could threaten Delta stock's longer-term uptrend.
Two Trades for Delta Stock
Call Spread: Delta rallying in the face of rising fuel costs is a bullish indicator for the stock. What's more, the company already announced that it would beat first-quarter expectations. Traders looking to take advantage of a post-earnings rally might want to consider entering an April $55/$56 bull call spread.
At last check, this spread was offered at 40 cents, or $40-per-pair-of-contracts. Breakeven lies at $55.50, while a maximum profit of 60 cents, or $60-per-pair-of-contracts - a potential 50% return - is possible if Delta stock closes at or above $56 when April options expire.
Put Sell: If betting bullish on Delta stock has you a bit worried, you might consider entering an April $50 strike put sell position to profit from technical support. At last check, this option was bid at 33 cents, or $33 per contract. A sold put allows you to keep the premium as long as Delta stock closes above $50 at expiration. On the downside, if DAL falls below $50 prior to expiration, you could be assigned 100 shares of DAL stock at $50 each.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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