JetBlue Airways Stock Options Traders Buy Puts Ahead of Earnings

Third-quarter earnings season is rolling on. In addition to several high-profile tech earnings that are due this week, New York-based airline name JetBlue Airways Corporation (NASDAQ:JBLU) will take its turn in the earnings confessional tomorrow. Ahead of the event, JBLU stock is down 1.6% at $20.03 -- trading near several key technical levels -- and options traders have been targeting even bigger losses for the shares.

In fact, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), JBLU's 10-day put/call volume ratio of 1.60 ranks higher than 97% of all comparable readings taken in the past year. What this means is that puts have been bought to open over calls at a quicker-than-usual clip in recent weeks.

Among options that have not yet expired, the November 18 and 19 puts have seen the biggest increases in open interest over the past two weeks, with almost 10,000 contracts collectively initiated. Data points to significant buy-to-open activity at each strike, suggesting options traders are bracing for a sharp move lower by front-month expiration at the close on Friday, Nov. 17.

Today, however, it's call volume that's accelerated, with 11,773 contracts traded -- four times what's typically seen, and volume pacing in the 94th annual percentile. As a point of comparison, 2,319 puts are on the tape so far. Almost 86% of the action has centered at the November 20 call, though it's not entirely clear what is occurring here.

While traders may be buying to open new positions, it's also possible they are selling to close the calls ahead of expiration. This strike is currently home to peak front-month open interest of 10,194 contracts -- most of which was bought to open back on Tuesday, Oct. 3 when JBLU shares were trading in the $18.58-$19.85 range.

Regardless of what's happening, short-term volatility expectations are on the rise ahead of earnings. JetBlue's 30-day at-the-money implied volatility was last seen at 38.5% -- in the 98th annual percentile, implying it's getting more expensive to buy these near-term options, relatively speaking.

Looking back over the past eight quarters shows JBLU has tended to struggle in the immediate aftermath of its earnings reports, closing lower five times and eking out a fractional gain last July. This time around, the options market is pricing in a 7.5% swing in the session subsequent to reporting, regardless of direction.

Based on the stock's current perch, a move to the downside would bring it near $18.55. This sits just above its early October lows of $18.45, and a 61.8% Fibonacci retracement of its rally from June 2016 through July 2017. A move of this magnitude to the upside would send JBLU stock to $21.55 -- above recent resistance in the $20.20-$20.60 region, which respectively coincides with a negative 10% year-to-date return and a 38.2% retracement of that 13-month surge.