The threat of rising fuel prices hasn’t slowed Delta Air Lines, Inc. (NYSE:DAL) one bit. While 2018 has been volatile for Delta stock, the shares remain in a strong uptrend that began back in July 2016. The company has first-quarter earnings on tap next week, providing an opportunity for bullish DAL stock investors.
On Tuesday, Delta basically announced that it was going to beat consensus earnings targets. , first-quarter revenue growth will arrive near the high end of its forecast, up 5% year-over-year. Delta also backed it’s earnings forecast for 65-to-75-cents-per-share and said that capacity rose 3% for the quarter.
Click to EnlargeHowever, the bullish announcement has largely been buried under a deluge of data breach headlines. News of the cyber attack has overshadowed Tuesday’s first-quarter update, but that could be a boon for bullish Delta stock traders.
While investors react to negative financial headlines, the sentiment backdrop for Delta stock remains largely bullish. Specifically, Thomson/First Call data reveals that 18 of the analysts following Delta stock rate the shares a “buy” or better.
Additionally, the 12-month price target rests at $73, well above Delta’s current trading range near $54. That’s plenty of room for follow-through buying in the wake of next week’s quarterly report.
Turning to DAL stock options activity, we find a healthy degree of pessimism for the shares. Currently, the April put/call open interest ratio arrives at 0.83, with puts nearly on par with calls among front-month options. Peak put OI, however, rests at the in-the-money $55 strike, lessening the sentiment impact of these puts.
Overall, April implies are pricing in a potential post earnings move of about 5.5% for Delta stock. This places the upper bound near $57, while the lower bound lies at $51. A post-earnings rally could push DAL back above short-term resistance near $57. A downside move, on the other hand, could threaten Delta stock’s longer-term uptrend.
Two Trades for Delta Stock
Call Spread: Delta rallying in the face of rising fuel costs is a bullish indicator for the stock. What’s more, the company already announced that it would beat first-quarter expectations. Traders looking to take advantage of a post-earnings rally might want to consider entering an April $55/$56 bull call spread.
At last check, this spread was offered at 40 cents, or $40-per-pair-of-contracts. Breakeven lies at $55.50, while a maximum profit of 60 cents, or $60-per-pair-of-contracts — a potential 50% return — is possible if Delta stock closes at or above $56 when April options expire.
Put Sell: If betting bullish on Delta stock has you a bit worried, you might consider entering an April $50 strike put sell position to profit from technical support. At last check, this option was bid at 33 cents, or $33 per contract. A sold put allows you to keep the premium as long as Delta stock closes above $50 at expiration. On the downside, if DAL falls below $50 prior to expiration, you could be assigned 100 shares of DAL stock at $50 each.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
