Option Trade 
Delta Air Lines, Inc. (NYSE:DAL) Puts 
Tuesday, 12th July, 2016

** OPTION TRADE: Buy the DAL SEPT16 2016 40.000 put at approximately $3.40. Place a pre-determined sell at $6.80.

Note: No protective stop losses added -- but if you wish to do so make it $1.40.

by Ian Harvey

July 12, 2016

Delta Air Lines, Inc. (NYSE: DAL), one of the oldest operating airlines, will report its second-quarter earnings numbers on July 14. The company will announce its quarterly results ahead of the market open, with the consensus calling for earnings of $1.55 per share, up from $1.27 during the same period last year. The stock is currently down 26.0% on the year.

DAL was recently trading at $37.50, down $15.27 from its 12-month high and $4.90 above its 12-month low. Technical indicators for DAL are bearish with recent support above $32.60 and recent resistance below $39.20.

Delta Air Lines has been an underperformer through the year, a reaction to rising oil prices, which have a negative impact on all transportation stocks, including Delta. The airline industry is also susceptible to potential weakness in the global economy should Britain’s move to leave the European Union have a material negative impact on economies around the globe.

Negative Input

Delta, like its peers in the airline space, has suffered greatly due to the Orlando shooting and the explosion at Shanghai Pudong airport on June 12. Such acts of terrorism impact airline stocks as there is a possibility of waning travel demand due to security fears.

Also, the Brexit vote last month has hurt stocks in the airline space.

Moreover, it is expected that Delta will struggle to continue on the revenue front in the second quarter of 2016. Foreign currency headwinds and the recent adverse macro events are likely to hurt the top line in the quarter. Delta expects passenger revenue per available seat mile (PRASM: a key measure of unit revenue) to decline approximately 5% in the second quarter (the previous guidance had called for a decline of around 4.5%).

Delta expects operating margin to be around 17% in the second quarter (the previous guidance had projected the metric at around 21%). Average fuel price per gallon is expected in the band of $1.95 to $2.00. System capacity is projected to increase approximately 3%.

It is also interesting to note that analysts are re-assessing their positive outlook on Delta Air Lines Inc. Recently Delta had its price target cut by investment analysts at Cowen and Company from $60.00 to $55.00 in a research note issued to investors last Wednesday. The firm currently has an “outperform” rating on the stock.

Also, several other equities research analysts have recently commented on the company.

• Zacks Investment Research lowered shares of Delta Air Lines from a “hold” rating to a “sell” rating in a report on Monday, June 20th.

• Deutsche Bank AG reaffirmed a “hold” rating on shares of Delta Air Lines in a report on Saturday, April 9th.

Harvey’s Options Volatility Indicator


Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the DAL SEPT16 2016 40.000 put at approximately $3.40. Place a pre-determined sell at $6.80.

Note: No protective stop losses added -- but if you wish to do so make it $1.40.

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Options traders win because they are successful.

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