President Donald Trump’s declaration that a ceasefire with Iran is over has traders betting on gains in crude oil and losses in airline stocks.
There’s just one big catch: airline stocks are up since the war began.
The U.S. Global Jets ETF is down 4% Wednesday, extending a two-day decline after challenging all-time highs last week. The group is up 10% since the U.S.-Iran war started on Feb. 28, during which crude oil soared as much as 78% before erasing the gain entirely, as of last week.
Options trading in both crude oil and airline stocks suggests consumers may want to brace for a fresh repeat of conflict-driven pricing fluctuations. Put-buying accounted for almost 75% of all options trading in JETS Tuesday on volume about twice the 30-day average, according to ThinkOrSwim and Cboe LiveVol data. In the U.S. Oil ETF USO, traders bought more than 32,000 calls compared to just over 5,000 puts.
U.S. Global Jets ETF, YTD
“This has all the makings of a serious short squeeze under way,” Phil Streible, chief strategist at Blue Line Futures, said on the phone. “Bears are waving the white flag, they were caught completely off-guard by this.”
Investors looking for clarity on what the latest renewal of the conflict means for travel demand and input prices for airlines won’t have to wait long: Delta Airlines reports earnings before the opening bell on Friday.
The stock’s up 25% year-to-date, almost triple the return of the S&P 500, as carriers cite warm weather and strong consumer demand. Options traders expect a 6% swing in Delta shares after earnings, compared to a median 4% realized move over the past year.
Put-buying more than tripled call-buying in DAL options Wednesday, and call-selling was the most popular directional trade.
Still, there were notable contrarians in the flows: the biggest dollar-amount trade of the day was actually a call-buyer who spent almost $800,00 scooping up 800 of the 90-strike calls expiring in January next year, contracts that need an 11% rally to pay off.
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