Airline Stock Short Sellers Deboard Ahead Of Coronavirus Vaccine Approval

Optimism surrounding coronavirus vaccines has driven stock prices higher in recent weeks, and airline stocks have been among the biggest winners. But while airline stock investors are making a killing on the vaccine trade, S3 Partners analyst Ihor Dusaniwsky said Monday airline short sellers are running for the hills.

Dusaniwsky said there's more than $9.5 billion in worldwide airline short interest. The airline industry has been severely negatively impacted by the pandemic, but investors are hoping a widely available vaccine will alleviate passengers’ fears and air travel will begin to return to normal in 2021.

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Most Shorted Airline Stocks: Here are the five U.S. airline stocks with the largest outstanding short positions, according to S3:

• American Airlines Group Inc AAL, $2 billion in short interest.
• Southwest Airlines Co LUV, $698.6 million in short interest.
• United Airlines Holdings Inc UAL, $680.5 million in short interest.
• Delta Air Lines, Inc. DAL, $527.7 million in short interest.
• Spirit Airlines Incorporated SAVE, $315 million in short interest.

Dusaniwsky said total airline short interest has dropped by $386 million in the past 30 days. Short sellers have been particularly aggressive in covering their bets against United and Southwest in that time. United’s short interest has decreased by $57.6 million, while Southwest’s short interest is down by $36.9 million in the past month.

Dusaniwsky said airline stock short sellers have had some home run trades in 2020, including year-to-date, mark-to-market profits of $671.4 million on Delta, $607 million on United and $553.2 million on American. However, short sellers have also misfired on a handful of airline stocks this year as well, including taking a $21.4 million year-to-date loss on Spirit.

“With mark-to-market losses taking a large chunk out of their year-to-date mark-to-market profits we should be seeing short covering in these names as traders rush to realize unrealized profits before they disappear like airplane contrails into the sky,” Dusaniwsky said.

Benzinga’s Take: The one-two punch of at least one FDA-approved coronavirus vaccine and another round of large-scale government stimulus in the next couple of months could go a long way in restoring investor confidence in airline stocks. If you add significant short covering volume into the mix, airline stocks may continue to gain some major altitude in the near-term.