Yesterday Delta Airlines gaped up and traded at it highest level since 2011 before finishing the day up 1.5% but off of its highs. The stock saw heavy call trading, sending the call/put ratio to 5.3:1. The biggest trade of the day was the purchase of 6000 June 13 calls and sale of 6000 June 15 calls for a net debit of $0.88 with the stock at 13.52. This trade has a break even price of 13.82 at June expiration, and it therefore a bullish bet that the stock continues its rally higher.

The reason for Delta’s surge higher yesterday was an upgrade from Goldman who changed its rating from “sell” to “buy” on the company’s cost-cutting efforts and rebounding international credit. Goldman’s price target is $15.90, but this trade structured their option trade with a price target of 15. By selling the 15 call they were able to subsidize the purchase of the 13 call. This means a lower outlay of cash for the position and therefore lower risk to the trade. Delta is already up 12% year to date and nearly 50% since November. After such a big run, especially in the last two weeks, Delta is due for a pull back or period of consolidation. If you are looking for long exposure to the stock it is important to do so with as little downside risk exposure as possible. This bull call spread risk $0.88 to make $1.12 if DAL is above 15 at expiration. I would look for reward-risk multiples above 1 and would look to put call spreads on after a pull back. With the stock hitting resistance yesterday and the S&P 500 futures touching resistance as well, a pause in the rally could be coming soon.