Yesterday the airline sector fell dramatically after American Airlines (AAL) CEO said that airlines are expanding capacity too quickly. Southwest Airlines (LUV) added to the concerns when the company said revenue per available seat mile would fall 3% in the second quarter. These comments crushed the sector, with Southwest falling by 9.09%, American Airlines dropping 10.01% and Delta (DAL) losing 5.60%. This morning, the sector has stabilized and is trading virtually unchanged.
Yesterday, amid the selloff, call buying was very aggressive in the sector. However, most of the call buying was focused in longer-term options such as expirations cycles in September.
This morning, a trader put on a large bullish trade in JetBlue Airways (JBLU), which yesterday fell $1.51, or 6.94%. This trader sold 10,000 JBLU July 21 Puts for $1.40 as the stock was trading at 20.35. This was an in-the-money put sale, which is a high-conviction bullish trade. If JBLU were to close below 21 on July expiration, this trader would be forced to buy 1,000,000 shares of JBLU for 21. However, if the stock closes above 21 on July expiration, he would collect $1.4 million.
It will be interesting to see how JBLU and the airline sector reacts in the days and weeks to come to the negative news that hit the stocks so hard yesterday.
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