Options Corner: DAL Cruises into Earnings Despite Crude Oil Rally

maintaining an outperform rating o the stock. Time now for options corner. Joining us to take a deeperk at Tom white senior options contributor. All right. Delta has had ag year up more than 40% year over year. What trends should we notice on this chart. Well we've got a longer term chart to kind of take alooy chart. And it kind of is reflective of what seen from the big major carriers, which is probably Delta and United As. I mean the stock was under $40 justhree years ago. So we've more than doubled stocks trading around $82 h but pulled back from those all time highs that we saw. But we've seen the travel continue to be pretty robust over the last thr years. Now if we break this down against some of its competitors, the premium seating, the business travel, the international travel is all led by Delta. They are the the biggest player out of the four major carriers thateing Un Delta, American Airlines and Southwest. And you can see here from thert they're all in pretty much tight correlation. You've go some ss in American Airlines. southwest as they tryess in rejigger their whole thing. But then if you take a look at Delta Airlines outperforming United American and Southwe Airlines in this space, which isn't sing, they've got bett margins. They've got less debt than the other players in this space. So yea it's been a pretty robust 3 to 1 years that we've seen in Delta going into this earnings that time frame and just look over one year one day chart stocp nearly 20%. We're pulling back here a little bit today. But that's not surprising right. Crude oil is up over 4%. That immediately goes into margi for theairlinesn since the war started here Diane the airlines continued to move to the upside. Even though these headwinds from fuel pricing hasn't really negatively imp their results. They grew revenue last quarter 17% on a year over year basis. Premium was up 20% on aad that's where the higher margins are, are international travel, seating. They're not adding capacity. That's always a big thing. And that's going to be something to watch going into this earnings event. But you can see here from the 50 day simple moving average, it's acted as basically support over the last severalths. But we've cracked those levels. Now. We're kind of consolidati right near those levels. But it's not surprising. We've got crude oil back above $90 a barr as I mentioned. That's going to be a continued headwinds as far as momentumgoey momentum throughout September starting to tail off here. Got the RSI around the 50 level here that we'll continue to watch. But watch this 50 day simple moving average. It fee like we're coiling and maybe finding a base there. Yeah, I have say I have been sed by the ability to handle these higher oil prices. But let's get into the approach. Yo would take for an example trade. Well implied volatility levelsre relativel elevated going into this report. Not surprising right. We could see a move in the stock. If you look at options market ispricinr minus about 4.3% move in either direction on a one day basis, to take advantage of the higherd implied volatility with this example trade. This is a neutral strategy. You don't have to pick a dir. You just hope tck continues to consolidate at or near thesea share. So I looked at selling an iron short iron condor, sometimes referred to as a short iron butterfly, because sn the same strike here. I went to . So really short term positioning on this example. Trade just one day till expiration on this where I'm going to go and sell the 82 strike call and 82 strike put. So you're selli straddle there. And then to offset the costs to make it risk defying we're going to buy a the 78 strike, put on thebuy downside. And we're going to buy the 86 strike call on the up So in essence, you're creating a short call vertical short puttical with the same common short strike. You're going to collect a credit of about $3. That's what you can potentially make $300 per spread with about $100 in . 6 level or bel the 78 level. What you want to see is some consoln here, where the where the stock opens up between those break evens of 79 and 85. And then you buy this back at a lower price because volatility is going to collapse. So a neutral stratre in Delta. All right