Market Insights

Option traders are piling into American Airlines as travel rebounds from the pandemic, looking for the carrier to hit new 52-week highs this week.

Heavy volume was detected in short-term calls expiring this Friday, March 19:

• More than 60,000 March 26 calls traded against previous open interest of just 9,399 contracts. Buyers initially paid $0.47 and then saw premiums double to $0.92 as the stock rallied.
• Almost 30,000 of the March 27s changed hands — about 10 times previous open interest. Prices started at $0.27 the second after the opening bell. Prints as high as $0.60 followed less than an hour later.
• AAL’s March 27 calls and April 25s also saw heavy buying.

Calls fix the level where investors can purchase stock. They can appreciate rapidly when shares rise but also lose all their value if prices don’t go high enough. Traders often use them to generate leverage and manage risk.

AAL rallied 7.7 percent to $25.17, its highest close since February 24, 2020. That was the same day coronavirus fears swept markets, hammering countless travel stocks like airlines, hotels, casinos and energy. The same group of companies have rebounded in the last month as infections plummet.

AAL’s unusual options activity pushed overall volume to 541,000 contracts. That was about twice the daily average in the last month, making it the sixth-busiest underlier in the market. Calls accounted for a bullish 79 percent of the total.

TSA Screenings Surge

Yesterday brought at least two positive stories for airlines. The Transportation Security Administration (TSA) reported screening the most passengers in almost a year last Friday. Several industry executives, including the CEOs of AAL, Delta Air Lines (DAL) and United Airlines (UAL) also made positive comments at an industry conference.

Speaking of UAL, the No. 3 carrier had the most options activity since June. Traders purchased more than 20,000 1-April 70 calls. They also snapped up 10,000 March 65s for $0.22 to $0.74. Overall options volume in UAL was almost triple the daily average, with calls outnumbering puts by 4-to-1.

UAL advanced 8.3 percent to $60.94, its highest closing price since March 2, 2020. It was the largest gainer in the S&P 500 yesterday. AAL had the second-biggest advance.

All told, airlines are the top-performing major industry in the last month, up more than 20 percent. They’ve helped lift the broader Dow Jones Transportation Average by 10 percent in that time, compared with a 1.3 percent increase in the broader S&P 500 index.