Southwest Airlines Finds A Bottom, Options Traders Bet On Bounce

Southwest Airlines’ LUV stock was driven toward the ground after trying to reach its Dec. 21, 2017 all-time high of $67 in April.

Despite customers returning to the skies as the economy reopens and vaccinations ramp up, airline stocks have failed to return to pre-pandemic levels. Boeing Co BA, the airline sector leader, is still trading down about 24% below its Feb. 3 price of $318.75.

See Also: Jim Cramer Says Don't Go Buying Boeing Dip Just Yet

As the July 4 holiday approaches, air traffic will likely pick up as people fly off to celebrate with friends and family. Traveler throughput is still down from 2019, however, and on Monday the Transportation Security Administration passed about 400,000 fewer people through an airport checkpoint than on the same day in 2019.

Options traders believe Southwest’s stock may have found a bottom. These traders chose a strike price of either $54.50 or $57.50, which coincides with two upper resistance levels on Southwest’s chart.

Why It’s Important: When a sweep order occurs, it indicates the trader wanted to get into a position quickly and is anticipating an imminent large move in stock price. A sweeper pays market price for the call or put option instead of placing a bid, which sweeps the order book of multiple exchanges to fill the order immediately.

These types of call option orders are usually made by institutions, and retail investors can find watching for sweepers useful because it indicates “smart money” has entered into a position.

The Southwest Option Trades: Below is a look at the notable options alerts, courtesy of Benzinga Pro:

• At 9:39 a.m., a trader executed a call sweep near the ask of 1007 Southwest Airlines options with a strike price of $54 expiring on July 16. The trade represented a $97,679 bullish bet for which the trader paid 97 cents per option contract.
• At 9:44 a.m., a trader executed a call sweep near the ask of 473 Southwest Airlines options with a strike price of $54.50 expiring on July 16. The trade represented a $38,786 bullish bet for which the trader paid 82 cents per option contract.
• At 9:44 a.m., a trader executed a call sweep near the ask of 889 Southwest Airlines options with a strike price of $57.50 expiring on Aug. 7. The trade represented a $94,234 bullish bet for which the trader paid $1.06 cents per option contract.
• At 9:48 a.m., a trader executed a call sweep near the ask of 370 Southwest Airlines options with a strike price of $54.50 expiring on July 16. The trade represented a $31,080 bullish bet for which the trader paid 84 cents per option contract.
• At 9:50 a.m., a trader executed a call sweep near the ask of 452 Southwest Airlines options with a strike price of $54.50 expiring on Aug. 20. The trade represented a $38,786 bullish bet for which the trader paid $1.17 per option contract.
• At 10:01 a.m., a trader executed a call sweep near the ask of 314 Southwest Airlines options with a strike price of $57.50 expiring on Aug. 20. The trade represented a $40,820 bullish bet for which the trader paid $1.30 per option contract.

LUV Price Action: Shares of Southwest trade around $53.16 at publication time.