Options Corner: Delta Air Lines Could Catch A Tailwind Despite The Smart Money's Defensive Posture

Delta Air Lines Inc (NYSE:DAL) understandably isn't off to the greatest start this year. Although experts anticipate growth in travel demand, the overall economy has been shaky. This circumstance has left DAL stock trading just below parity against January's opening salvo. Subsequently, the smart money appears pensive, with options market dynamics prioritizing downside volatility protection.

Still, there is reason for optimism. Late last year, U.S. airport screenings of flight passengers hit a record figure on Nov. 30, 2025, the Sunday after Thanksgiving. For airliners at the time, it provided a fundamental double boost. First, the surge helped offset some of the financial pain incurred due to a historically lengthy government shutdown. Second, the demand lift signaled a broader recovery in the sector.

Perhaps most encouragingly, last year's record passenger screenings align with a recent Morgan Stanley report, which forecasts that corporate travel budgets may rise by 5% globally this year. In addition, there's evidence that leisure-related travel may represent a sustained growth opportunity. If so, that would likely help an enterprise like Delta, which is positioned as a more premium U.S. carrier relative to most domestic carriers.

Still, the options market doesn't seem too convinced, especially if we're looking at the volatility skew for the next monthly options chain. Definitionally, the skew identifies implied volatility (IV) — or a stock's potential range of motion — across the strike price spectrum of a specific expiration date. In laymen's terms, the skew provides a visual index of surface area distortion of volatility space, allowing traders to understand the smart money's risk positioning.

Basically, the skew is equivalent to formations in soccer. For the March 20 expiration date, traders are prioritizing downside risk management, with both call and put IV swinging upward at the left boundaries (toward lower strikes). To extend the sports analogy, this setup would be the equivalent of a 5-4-1 formation, with an extra defender positioned in the backfield to protect a late lead.

Offensively, though, the 5-4-1 lacks forward pressure, which in the case of DAL stock could mean that call options are relatively cheap.

Identifying A Gameplan For DAL Stock

If the skew is a soccer team's formation, then the Black-Scholes-derived expected move calculator represents the passing lanes that are available to the player with control of the ball. Typically, in soccer, you have two or three safe passes, including one back to the keeper. There may also be some dangerous but highly contested passes available.

For the March 20 expiration date, Wall Street's standard model for pricing options provides a dispersion between $63.13 and $75.53. This range of outcomes represents a high-low spread of 8.95% relative to the spot price. Mathematically, Black-Scholes claims that in 68% of cases (which is the equivalent of one standard deviation), Delta stock should trade within the prescribed range when the expiration date hits.

However, this data is really only useful as a benchmark. Where the real edge is found is in developing a model that would justify or rationalize this range.

Going back to the beautiful game, scoring opportunities don't just exist statically in the abstract, waiting to be discovered. Instead, these opportunities arise dynamically. In other words, your forward doesn't just magically become open. Instead, the player constantly moves around, looking for structural vulnerabilities and mispositionings to exploit.

The problem with Black-Scholes is that it's a static model, equivalent to passing a ball to someone's feet. In the professional game, that type of one-dimensional thinking isn't likely to get you far. Instead, we need to recognize that the most effective scoring opportunities come from the thru ball, which involves passing the ball into space and anticipating that your teammates will be on the same wavelength.

As it turns out, we already have a framework that helps calculate probabilities in dynamic space — and that is the Markov property.

Narrowing Likely Outcomes For Delta Stock

Taken from Russian mathematician Andrey Markov, the Markov property colloquially asserts that the future state is solely dependent on the present state. For example, in the soccer analogy above, the chances of scoring depend on factors such as ball placement and whether defenders are positioned appropriately.

In the case of Delta stock, DAL in the past five weeks printed only two up weeks but with an overall upward slope. There's nothing special about this 2-3-U sequence, per se. However, this quantitative signal represents a particular run of play — and through observations of past analogs of this signal, we can estimate what the next outcome is likely to be.

Without getting too bogged down into the details, we can use a combination of enumerative induction and Bayesian-inspired inference to calculate the forward five-week return, which comes out to an approximate range between $67 and $75. Probability density will likely peak around $71.50, with about 71% of probability density projected to land above the spot price.

In full disclosure, you should realize that the future is not necessarily compelled by the past, per philosopher David Hume's critique of inductive methodologies. However, I would argue that from an operational standpoint, Markov-based enumeration is the best tool that we have to narrow the probability space of an optionable security.

If you accept the premise above, I'm tempted by the 70/73 bull call spread expiring March 20. This wager requires DAL stock to rise through the $73 strike at expiration to trigger the maximum payout of over 105%. Breakeven lands at $71.46, which is basically at the peak of the aforementioned quant signal's probability density.

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