To The Moon

$Delta Air Lines(DAL)$ defied expectations with a strong showing in their first-quarter 2024 earnings report. Here's a breakdown of the key metrics and what they signal for the airline industry:

Delta's adjusted earnings per share (EPS) of $0.45 marked an impressive 80% year-over-year increase. This handily beat the analyst consensus estimate of $0.36, demonstrating the airline's ability to navigate rising fuel costs and capitalize on improving travel demand.

Total revenue reached $13.75 billion, reflecting a 7.8% increase compared to Q1 2023. This surpassed analyst expectations of $12.84 billion, indicating Delta's success in driving sales across various sectors. Passenger revenue remained stable at $11.13 billion, exceeding analyst estimates. While cargo revenue dipped slightly year-over-year to $178 million, it fell within analyst predictions. Notably, "Other net revenue," which includes items like loyalty programs and fees, surged to $2.44 billion, significantly exceeding expectations. This suggests Delta is finding creative ways to boost ancillary revenue streams.

The market responded positively to the report, with Delta's stock price rising in pre-market trading. Investors are likely buoyed by Delta's ability to not only weather rising fuel costs but also generate strong passenger travel demand. This is a welcome sign for the airline industry's continued recovery.

I successfully captured a profitable options play around Delta's recent earnings release. I sold $DAL 20240517 41.0 PUT$ a day prior to earnings release at 0.56 and buy back at the open at 0.37, gaining a modest 30%+ return. As you can see, the IV crush came after the earnings release. If I hold slightly longer, I could have sold at around 0.2 range even though the stock price was going down. For earnings trade in the future, I will be sure to wait around 20-30mins after open for the IV crush to happen before closing my trade.

This experience highlights the potential for profiting from selling options strategically around earnings announcements. Earnings announcements often lead to significant price swings, which in turn drive up implied volatility (IV), a key factor influencing option prices. Higher IV translates to higher option premiums. By repurchasing (buying back) the options contracts at market open on earnings day, I benefitted from the post-earnings IV crush. This phenomenon occurs because the uncertainty surrounding a company's performance (reflected in IV) often diminishes after the earnings report is released. As IV dropped, the price of the options contracts I sold also decreased. In the future, I'll consider waiting 20-30 minutes after the market opens on earnings day to allow for a more pronounced IV drop before exiting my options trades. This approach can maximize the gains from the post-earnings volatility shift.

DAL Put Chart

DAL Put

Options trading involves inherent risks, and this is just one example of a successful strategy. It's crucial to thoroughly understand options mechanics and potential risks before employing them in your investment strategy.

Disclaimer: The information provided is for educational and informational purposes only and does not constitute financial advice. Always conduct your research before making investment decisions.

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