Altitude test for aviation stock
- FTAI call volume heavier than average this week
- Stock in short-term consolidation, but up 67% YTD
- Will resistance near all-time highs make itself felt?
While being a knee-jerk contrarian can lead traders and investors to prematurely fade trends they should be riding, it’s also true that markets sometimes reverse when things are looking particularly bullish or bearish.
Consider the example of a stock that has been outperforming the broad market for several months. As it’s in the process of breaking out to a new multi-month high, call options volume spikes. All things considered, it sounds fairly bullish.
With that in mind, let’s take a look at FTAI Aviation (FTAI), which on Tuesday morning had call volume roughly two-and-a-half times average:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
FTAI actually experienced much more call trading one day earlier, when it had one of the day’s highest call-put ratios. Two prints stood out on Monday: 2,000 contracts in both the May $27 calls and August $30 calls. Yesterday, though, open interest (OI) in the May 27 calls was almost unchanged, while OI in the August $32 call was around 2,000 contracts higher. That means 2,000 contracts may have been rolled “up and out”—that is, closed in the May expiration and reopened in the August expiration, at a higher strike price. So, it’s unclear just how potentially bullish this activity may be.
Also, the fact that most of Tuesday’s call trades occurred in the April options expiring on Friday means that, even if these positions were initiated by bullish traders opening new positions, they only reflect a three-day market outlook.
Options activity may also take on a different tone in the context of a stock’s price action. In this case, FTAI closed down on Tuesday, but not before hitting its highest price ($28.57) since June 30, 2021—just a little below the all-time high ($29.25) the stock made earlier that month. At Tuesday’s high, the stock was up around 67% for the year—more than eight times as much as the S&P 500:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
It remains to be seen whether the stock’s former highs will act as resistance, but it’s worth noting a potential test is occurring at a conspicuous time: FTAI is currently scheduled to release earnings after the closing bell on April 26. While the stock has, more often than not, gained ground in the week before earnings (17 of 32 times since 2015), it has just as frequently posted a net loss the week after.1
As the saying goes, the trend is your friend (until it ends, of course). It may not be helpful to be a reflexive contrarian, but long-time traders tend to want to scratch beneath the surface to find out whether “bullish” or “bearish” trading activity is what it initially appears to be.
Today’s numbers include (all times ET): Mortgage applications (7 a.m.), EIA Petroleum Status Report (10:30 a.m.), Beige Book (2 p.m.).
Today’s earnings include: Abbott Labs (ABT), ASML (ASML), Morgan Stanley (MS), Synchrony Financial (SYF), US Bancorp (USB), Alcoa (AA), Crown Castle (CCI), Carvana (CVNA), F5 (FFIV), International Business Machines (IBM), Kinder Morgan (KMI), Lam Research (LRCX), Tesla (TSLA), Wintrust (WTFC).
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1 Reflects FTAI Aviation (FTAI) daily closing prices, 6/1/15–4/18/22. Supporting document available upon request.