American Airlines ended last week with a seven day losing streak. Over the last eleven sessions AAL has managed one gain. Today shares are beginning to lift after returning to oversold territory. At this morning’s early low the stock was down nearly 30% from last month’s peak(9/21), the steepest four week drop since the second quarter of 2016.
With an hour left in today’s session AAL is up just shy of 4% and is a top five gainer in the S&P 500 Index. We believe the stock is showing signs of a bottom and is a low risk buy at current levels. Option traders are also taking note of this deeply oversold condition.
On the downside a close back below $30.00 would violate last week’s low sending a clear warning sign that a more drawn out bottoming pattern will be needed before a meaningful rebound can develop.
JP Morgan reiterated their ‘buy’ rating, and raised their price target, on AAL this morning. Earnings are due Oct. 25th.
Here’s Bob’s take on today’s AAL option trading:
Significant buy interest in the November expiration 35 calls, with just over 7,000 contracts trading mostly in the range between $.65 to $.75. One note of caution, implied volatility on this contract is around 48% which is much higher than its more recent 6 month range in the low to mid 30% zone. Also, earnings are scheduled to be released Oct 25th in the premarket hours. All that being said, I thought the risk reward was favorable on this trade and did take a position long at $.65 early this morning. Delta had a decent earnings report that boosted the stock last week, and oil prices have moderated a bit as well, which is obviously a huge driver for airline shares.