[转贴] Options investors aim high with Delta

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Options investors aim high with Delta


--Bullish trading flies as investors look for Delta to extend gains

--Recent sharp rises allow options traders to lock in profits

--Delta shares look to finish at a more-than-two-year high

NEW YORK--Options traders are betting that on the heels of a recent runup, Delta shares will soon be further upgraded from "coach" to "first class."

Options activity was strongly bullish after an upgrade from Goldman Sachs pushed trading volume to more than four times the daily average. About 7.5 bullish "call" options, which grant the right to buy shares, traded for every "put" option granting the right to sell, according to options-data firm Trade Alert.

Shares of Delta, the No. 2 U.S. carrier by traffic, was up 25 cents, or 1.9%, to $13.36 in recent afternoon trading Thursday, on pace to finish the day at a more-than-two-year high. The day's rise extends the stock's ascent since Dec. 5 to nearly 40%. In that time, Delta announced a deal to acquire a 49% stake in Virgin Atlantic Airways Ltd., boosting the U.S. carrier's presence in London.

Thursday, Goldman Sachs upgraded Delta to "buy" from "sell," citing a belief Delta is the airline best positioned to gain this year. "Cost-cutting initiatives coupled with an eventual recovery in passenger traffic should drive accelerating earnings growth this year," Goldman's note said.

In the options market, trading concentrated around the already-profitable March $11 call option, which grants the right to buy 100 shares at that price through March 16. That contract exchanged hands more than 10,400 times as of midday, as some bullish traders set up a new positions and others cashed out of an existing profitable position.

Shortly after the market opened Thursday, one investor sold nearly 6,800 of the March $11 calls for $2.70 a share to close an existing position, according to International Securities Exchange data. It is unclear when that trader's options position was set up. But on Dec. 14, the last time that options contract traded with similar volume, the call cost as little as $1.12 a share.

At earlier times when the option traded, it cost even less, with the contract trading for as little as 44 cents a share in mid-November. That means the investor is likely walking away Thursday with a profit of anything from 141% to more than 500%.

Meanwhile, the purchaser of those same option contracts was opening a new position, according to the exchange data. That means that investor believes Delta shares have enough upside potential to justify the $2.70-a-share price of the option. For the investor to profit, Delta shares must rise more than 2.5% to above $13.70--the "strike" price of the option plus the cost to buy it--over the next two months.

"The seller here is happy to get out with a huge profit," said Steve Claussen, chief investment strategist at online-brokerage OptionsHouse.

Another trader Thursday also took a profit while extending a bullish bet on Delta through June.

The trader sold an existing position of June $13 call options. That bet was originally purchased for 94 cents a share Dec. 18, according to trading data. With a sale price of $1.64 a share Thursday, that trade brought in a 74% gain. But the trader Thursday used the profit to establish a new bullish bet on the shares and bought June $15 call options, which count on a 13% jump over the next five months.

"This is not a case of someone changing their view, but of someone modifying exposure and taking some chips off the table," said Mr. Claussen. "The profits here really show the leverage of options."

Since Dec. 18, Delta shares have gained 16%, compared with the 74% increase in the June $13 call option price.