Nyse Order Imbalance 64059.0 Shares On Sell Side

To be completely blunt, intrepid investors don’t need much excuse to at least have the desire to short Spirit Airlines . Obviously, the biggest concern stems from the termination of the merger agreement with JetBlue Airways . Amid a competitive environment following a devastating disruption from the COVID-19 crisis, SAVE stock is in ugly shape.

Making matters worse, the recent data gives no impression that the discount airliner is anywhere close to making a recovery. Let’s look briefly at the company’s latest earnings results for the second quarter. On a per-share basis, Spirit incurred a loss of $1.76. When adjusted for non-recurring costs, this metric came down to $1.44 in the red. Neither result met Wall Street’s target.

On the top line, Spirit generated sales of $1.28 billion. This figure also fell below analysts' expectations, who had expected $1.31 billion. It’s no wonder that on a year-to-date basis, SAVE stock gave up almost 85% of equity value. Heaping on the misery, market experts rate shares a consensus Moderate Sell. Out of 11 ratings, seven of them were Strong Sells.

At the same time, it’s risky to directly bet against this pitiful situation. Yes, traders are betting against SAVE stock — in fact, the short interest as a percentage of float stands at 29.18%. In addition, the short interest ratio clocks in at 11.83 days to cover. However, with so much weight on the short trade, if circumstances suddenly shift to the bullish side, the bears may be caught out.

That’s why I’m not particularly gung-ho on the pure short trade. However, that’s where a controlled options strategy involving a vertical spread may come in handy.

Unusual Options Activity is Ominous for SAVE Stock

Last Friday, SAVE stock dropped about 3% of market value. Therefore, it wasn’t a shock when it represented one of the “highlights” in Barchart’s unusual stock options volume screener. What’s more, the details played out almost exactly as expected.

Total volume for the aforementioned session stood at 69,161 contracts against an open interest reading of 772,445 contracts. Overall, Friday’s volume soared 394.75% above the norm for the trailing month. Call volume reached only 6,983 contracts while put volume dominated at 62,178. Therefore, the put/call volume ratio hit an ugly 8.9.

While the above ratio is a useful tool to discern sentiment, it can also be deceptive as options involve the buying and selling of derivatives. Put another way, it matters who does the buying and selling. To better decipher market sentiment, we can turn to Barchart’s options flow, which tells us the “emotion” of the moment of institutional or professional investors.

Notably, when looking exclusively at big block transactions, net trade sentiment (which is calculated by totaling the premiums of bullish and bearish sentiment options) sat at $-136,400, favoring the pessimists. Overall, bearish options featured a premium count of $-377,500 and bullish derivatives featured a premium count of $241,100.