Calls soar with Delta Air Lines

Airlines have been a tough trade in recent weeks, but short-term calls paid off quickly in Delta today.

Investitute’s tracking systems yesterday found that 2,700 Weekly $46 calls expiring on May 12 were bought for $0.62 to $0.76 with shares at $45.79. Open interest in the strike was only 214 contracts before the trades occurred, showing that this was new positioning.

Those calls ended today with a bid/ask spread of $1.89/$2.20, roughly tripling in value just one session later. The stock gained less than 4.5 percent in the same time frame, illustrating how options can outperform their underlying share price.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

DAL rose 5.35 percent today to close at $47.83. The carrier pulled back after reporting earnings on April 12 and has seen volatile trading along with other airlines since the controversial passenger removal by rival United Continental.