The airline company is struggling to predict demand
Southwest Airlines Co (NYSE:LUV) cut its fiscal second-quarter forecast today, as the industry struggles to predict demand trends. Plus, Boeing's (BA) safety issues resulting in delayed jet deliveries are limiting growth. At last check, LUV is down 3.9% to trade at $27.40.
The shares are testing support at the $27 level, but gapping below the 40-day moving average as they look to snap their three-day win streak. The $30 region has acted as a ceiling since the equity's March pullback, rejecting a rally from earlier this month. Over the last 12 months, LUV shed 20.9%.
Short sellers are piling on, with short interest up 49.5% in the last two reporting periods. The 33.41 million shares sold short now account for 5.6% of the equity's available float, or three days' worth of pent-up buying power.
Options bears are chiming in as well, with 8,642 puts exchanged so far today -- four times the intraday average volume -- compared to only 1,376 calls. The most active contract is the weekly 6/28 28-strike put.
This pessimism has been prevalent for the last 10 weeks. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), LUV's 50-day put/call ratio ranks higher than 97% of readings from the last 12 months.
It's worth noting that the equity tends to outperform volatiliy expectations -- a boon for premiums traders. In fact, LUV's Schaeffer's Volatility Scorecard (SVS) ranks at an elevated 99 out of 100.