Tuesday, October 29, 2013

Delta Air Lines (DAL) - Stock Breaches All-time Highs as Volatility Breaches Multi-year Lows

DAL closed Monday trading at $26.14, down 0.6% with IV30™ down 1.4%. The LIVEVOL® Pro Summary is below.

Join Livevol Community

Delta Air Lines, Inc. (Delta) provides scheduled air transportation for passengers and cargo throughout the United States and around the world. The Company’s route network gives it a presence in every domestic and international market.

I found this stock using a real-time custom scan. This one hunts for depressed vols. I know this is an airline and that feels kinda boring, but it isn’t. This has a huge stock and volatility story. Trust me...

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to its own annual history (at most in the 10th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The LNG Charts Tab is included (below). The top portion is the stock price; the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side, although you may not have known it, DAL has been absolutely ripping. This was a $7 stock a couple of years ago and is now up more than 250%. The annual low is ~$9. All of a sudden, this doesn’t sound like a boring airline stock. DAL just recently crossed its all-time high (there was a re-org or bankruptcy or something, so history only goes back ~seven years). And what is happening as this stock has exploded? Volatility has been collapsing, naturally… naturally?

Let’s turn to the two-year IV30™ chart in isolation.

We can see a steady decay in implied volatility and after the last earnings release (the blue “E” icon represents earnings) another complete implosion. DAL is right on multi-year lows in volatility as the stock breaches all-time highs in stock price.

Finally, let's look to the Options Tab (below).

Across the top we can see that Nov vol is priced to 30.25% and Dec is priced to 31.05%. So, for those who are patient, there’s a lot of depressed volatility out there – this is not focused on the immediate-term expiry. This is one to keep an eye on. What happens to airline stocks if the economy moves one way or the other in an abrupt manner? Well, the stock usually moves more than multi-year lows in implied volatility. Right?...

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

This is trade analysis, not a recommendation.

Legal Stuff:

No comments:

Post a Comment