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Put Action Portends Potential Pullback In Delta Air Lines

 

Today’s tickers: DAL, GES & AGU

DAL - Delta Air Lines, Inc. – Options on the Atlanta, Georgia-based airline were among the most actively traded as measured by volume this morning after a large block of bearish puts changed hands in the first hour of the trading session. Shares in Delta Air Lines are sliding on a down day for the broader market, trading 4.0% lower at $9.15 as of 12:10 p.m. ET. Volume in Delta options was heaviest at the Dec. $8.0 strike, where upwards of 11,500 puts traded against previously existing open interest of 3,299 contracts. It looks like 9,110 of the $8.0 strike puts traded in a block and appear to have been purchased along with the remainder of the overall volume at a premium of $0.48 per contract. The sizable stake in DAL puts may represent outright bearish positioning on the airline through the end of the calendar year, or could be a hedge to protect the value of an existing position in the underlying shares. Profits, or downside protection, kick in if shares in Delta plunge 18% from the current price of $9.15 to breach the effective breakeven point at $7.52 by December expiration. Shares in Delta Air Lines, Inc. last traded below $7.52 in November 2011.

GES - Guess?, Inc. – Bulls buying front-month calls on Wednesday afternoon ahead of Guess, Inc.’s second-quarter earnings report were crushed today after the retailer revealed declining same-store sales and lowered estimates for full-year earnings and revenue. Shares in Guess reacted to the disappointing report by dropping 20% to an intraday low of $26.73. The largest increase in September expiration call option open interest overnight was in the $36 strike contracts, which rose by 904 lots to 1,406 contracts. A review of time and sales from Wednesday afternoon shows the purchase of approximately 850 of the Sep. $35 calls for a premium of $0.95 apiece just after 12:20 p.m. ET. Less than 24 hours later, the sharp drop in the price of the underlying stock finds the contracts changing hands at a premium of $0.05 apiece, a near 95% decline in the value of the contracts. Overall options volume on GES is larger than usual, with more than 25,000 contracts in play as of midday versus the stock’s average daily options volume of 3,373 contracts. Puts are more heavily traded than calls at present, with the put-to-call ratio hovering around 2.25 as of 12:05 p.m. in New York.

AGU - Agrium, Inc. – Options activity on potash producer, Agrium, Inc., this morning suggests some options traders may be positioning for shares in the name to move higher in the near term. The stock has been on a tear this summer, up roughly 36% since the first week in June, though slipping 1.7% today to trade at $99.16 as of 11:15 a.m. ET. Options volume on the stock is heaviest at the Sep. $97.5 strike where upwards of 5,100 in-the-money calls changed hands against open interest of 1,973 contracts. The bulk of the volume appears to have been purchased for an average premium of $3.90 apiece, thus positioning buyers to make money in the event shares rally 2.3% to exceed the average breakeven price of $101.40 by expiration next month. Shares in the maker of fertilizers and micronutrients hit a new four-year high of $101.89 on Monday.

 

Caitlin Duffy

Equity Options Analyst


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