Shares of airline operation American Airlines Group (AAL) have shed over 37 percent of their value in the past year. One trader sees the possibility for a further decline in the next two years.
That’s based on the June 2024 $3 puts. With 715 days until expiration, 8,774 contracts traded compared to an open interest of 138, for a 64-fold rise in volume on the trade. The buyer of the puts paid $0.46 to make the bearish bet.
Shares recently traded for just under $14, so they would need to shed about $11, or nearly 80 percent of their value for the option to move in-the-money.
The airline is contending with high fuel prices right now, a slowing economy, and even a pilot shortage. All those factors could weigh on shares in the coming months.
Action to take: The airline sector’s wild swings between profits and losses should make any investor wary. There’s likely a chance to buy shares at a reasonable price and get a big swing higher. That could play out in the next few months, but for now, investors should avoid buying shares.
For traders, the puts are a solid bet on the continued market volatility now. A further downswing in the markets could led these inexpensive options soar, although it’s unlikely that the option will move in-the-money. Traders should look to profit within a few months, rather than let the trade play out over two years.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.