American Airlines Group (AAL) is down 20% over the past year, as earnings have fizzled as the post-pandemic rebound in travel has petered out. One trader sees shares declining further over the coming weeks.
That’s based on the October 11 $10.50 puts. With 29 days until expiration, 26,722 contracts traded compared to a prior open interest of 372, for a 72-fold rise in volume on the trade. The buyer of the puts paid $0.38 to make the bearish bet.
American Airlines shares recently traded for about $11. The stock would need to drop by $0.50, or about 4.5%, for the option to move in-the-money. The strike price is well over the stock’s 52-week low of $9.07.
American’s earnings have collapsed by 46% over the past year, even as overall revenues are up by 2%. The airline hasn’t even been able to benefit from weaker energy prices, one of the biggest costs related to operating aircraft.
Action to take: Shares hit a 52-week low in August and have been climbing higher. But the stock is also near a resistance point, and may trend lower over the coming weeks. Interested investors should look for a better entry point.
For traders, the October $10.50 puts are well positioned for a downturn in shares and market weakness this time of year. Traders can likely see high double-digit returns or better on the trade.
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 company mentioned in this article.