Fat Cats Expect This Airline Stock to Fly Higher

Hey Traders,

 

I hope your trading week is going well so far, and that if you’re playing earnings roulette, you’re not paying those hefty premium taxes

 

As many of you already know, part of my Robinhood Trader strategy is spying on the institutional money — the market-maker cash that can move stocks quickly.

 

When I see this “impact money” combined with retail-trader interest — the same crowd that fueled the GameStop (Ticker: GME) drama earlier this year — my ears perk up.

 

It tells me two things:

 

        1. Social media platforms like Reddit’s /wallstreetbets could put a lot more eyeballs on a stock that’s trending; and
        2. An institutional cash injection could sustain a stock’s rally, so it’s more than just a blip on the charts.

 

That’s why I always have my ear to the ground of the option pit — because I want to spy on the big financial players to find out what’s on their radar.

 

And earlier this week, a MASSIVE trade on one stock — a stock I like for many reasons, which I’ll outline today — really piqued my interest.

 

Let’s dive into the big, bullish bet on one of my favorite airline stocks right now.  

 

American Rock ‘n’ Roll

 

On Monday afternoon, symmetrical blocks of 65,000 contracts traded on the American Airlines (Ticker: AAL) May 15-strike and November 17-strike call options.

 

They represented the two biggest equity option sweeps of the entire session, according to Trade-Alert, and the trade equated to about 6.5 MILLION AAL shares (since one option controls 100 shares).

 

AAL option trades on April 26, 2021 

 

Digging deeper, it looks like institutional players may have sold to close the May 15-strike calls, and then bought to open the November 17-strike calls.

 

But why? What does this mean?

 

It means they likely rolled a bullish AAL options position higher and further out in time.

 

Specifically, considering AAL shares have roughly doubled since their October lows, the trader cashed in a big winner and used some of the proceeds to extend the bullish position via higher-strike calls with more time to expiration.

 

After all, AAL is trading just shy of $22 — meaning the 15-strike calls had about $6 in intrinsic value (the difference between an in-the-money option strike and the underlying stock’s price).

 

Daily chart of AAL – courtesy of StockCharts

 

Now this trader wants AAL shares to fly even higher above $17, the new call strike.

 

Outside of LEAPS — or Long-term Equity AnticiPation Securities — which expire every January going out a few years, the November 17-strike call is now THE most heavily populated strike among all American Airlines options.

 

With 65,122 call contracts now parked at this strike, it’s safe to say that Monday’s massive trade is responsible for nearly all of that open interest.

 

AAL open interest as of April 27, 2021 – courtesy of Trade-Alert

 

Will AAL Take Off?

 

As I said, American Airlines is among my favorite travel stocks at the moment, and here are just some of the reasons why:

 

        1. There’s a sector rotation underway right now that’s typically benefited travel stocks like cruise lines and airliners, and as they say, “Industry momentum lifts all boats.”
        2. The whole world is ITCHING to get out and make up for lost time, and the collective post-pandemic stir-craziness should bode well for AAL.
        3. The risk/reward for a bullish play looks enticing — the stock has been flying high lately, but not so high it looks overdone; there’s still lots of room to the upside, from where I sit.

 

We’ll see what happens, but I’ll be watching AAL closely after the recent pullback — and it looks like some “impact money” will be stalking the shares, too.

 

Until next time …

 

Your Only Option,

 

Mark Sebastian 

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