Thursday, June 23, 2011

Delta Airlines (DAL) - Elevated Vol, Dipping Oil Prices, Variable Demand

DAL is trading $10.01, up 4.4% with IV30™ up 2.5% as of ~11:05am EST. The LIVEVOL® Pro Summary is below.


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Delta Air Lines, Inc. (Delta) provides scheduled air transportation for passengers and cargo throughout the United States and around the world. Ya know, Delta…

I found this stock using a real-time custom scan. This one hunts for high vols.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20 LTE 10
HV180 - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The DAL Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

We can see:
IV30™: 49.22
HV20: 33.40
HV180: 41.27

So, IV30™ is elevated relative to the short-term and long-term realized movement of the stock. The airlines are in an interesting position. Falling oil prices are good – very good, but if price falls because of weak demand, then that signals a weak global economy and that’s bad. The jobless numbers today are rather staggering (or so the market seems to believe) – yet DAL is up as crude continues to fall. It’s this interplay that makes the future stock price potentially volatile, and thus the elevated implied to the historical realized. Tricky...

Let’s look to the Skew Tab.

We can see a relatively normal looking skew – no kinks. Both of the front two months do show a slight parabolic bend up to the OTM calls.

Let's look to the Options Tab (below) for completeness.

I wrote about this one for (OptionsProfits) so no specific trade analysis here. All I will say is that the elevated vol at the very least reflects an elevated risk that makes fundamental sense... to me... I guess the real question if DAL is more dependent on variable demand or variable oil prices.

This is trade analysis, not a recommendation.

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