Airlines have been flying high on strong earnings, but many option traders aren't on board.
OptionMonster's tracking systems have been detecting heavy call selling and put buying in the sector, reflecting a generally skeptical attitude by traders.
Delta Air Lines got the earnings season off to a bullish start on Wednesday by crushing analysts' forecasts and indicating that fares were climbing. That marked a positive change for an industry plagued by decades of price deflation, overcapacity, and perennial losses.
The stock leapt 12 percent on the news, followed by a 4 percent gain the next day. US Airways and AMR , the parent of American Airlines, also beat earnings estimates.
Delta was the busiest name in the option market, fueled by heavy put activity. One investor bought back a short position in the January 10 and 9 calls while selling the January 12.50s, indicating that he or she sees only limited risk of the shares falling.
Also noteworthy, investors aggressively sold the November 13 and November 12 calls, betting that Delta will drop or remain little-changed through expiration on Nov. 19.
United Continental saw heavy call selling as well, most of which occurred after the stock traded over $28 for the first time since March 2008 and then reversed lower.
Similar trades occurred in AMR's December 8 and November 7 calls, although volume was below open interest in both. That means positions had been opened previously, so yesterday's activity may have resulted from the earlier trades being closed as well as new positions being opened. Regardless, the selling reflects a belief that AMR has limited ability to rally from current levels.
JetBlue Airways also tried to break to a new 52-week high this week before traders began selling calls. More than 7,700 January 6 calls were sold versus open interest of 2,218 contracts, indicating a strong belief that the stock will remain grounded into the New Year.
More than 126,000 option contracts traded in the industry yesterday, which is more than twice the average daily volume.
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David Russell is a reporter and writer for OptionMonster.