Following a disastrous period for the airline industry when airports across the world were rendered into veritable ghost towns, JetBlue Airways (JBLU) suffered hideous losses. When the dust settled on calendar year 2020, JetBlue didn’t even manage to post $3 billion in revenue, plummeting over 63% against the prior year’s tally. While pent-up demand for traveling helped the company and the industry recover, economic forces impose a dark cloud over JBLU stock.

Back when the COVID-19 pandemic first capsized American society, air travel almost evaporated within a matter of weeks. According to data from the U.S. Bureau of Transportation Statistics, revenue passenger miles for U.S. air carriers (for both domestic and international flights) plunged 96.7% from February to April 2020. With the mysterious SARS-CoV-2 virus floating around, few people wanted to be stuck in tight quarters with hundreds of strangers.

However, as the months in quarantine and mobility restrictions transitioned into years, many consumers experienced cabin fever. Moreover, with unprecedented fiscal and monetary policies directed at supporting American households reaching rare bipartisan consensus, people had extra money to spend. The combination of basic human desires to socialize along with a financial boost gave way to the revenge travel phenomenon.

Fundamentally, throughout 2021, this dynamic bolstered JBLU stock. With millions of consumers eager to make up for lost time through retail therapy and actualizing deferred vacations, the narrative boded well for JetBlue. Indeed, in 2021, the company posted revenue of just over $6 billion, more than twice as much as 2020’s result.

At the same time, those 2021 sales represented a more than 25% decline against 2019’s sales tally. Apparently sensing a decline in momentum, bearish traders made JBLU stock a point of focus for unusual options activity.

JBLU Stock Spills Some Blood in the Water

When the closing bell rang out for the Sept. 20 session, JBLU stock attracted the attention of bearish traders. Specifically, market participants piled into the $7.50 put options with an expiration date of Sept. 30, 2022. Volume reached 8,552 contracts against an open interest reading of 186.

In the open market, JBLU stock closed at $7.92. Given that the price only needs to decline 5.3% before the puts become at the money (all other things being equal), enough time exists for traders to see shares dip. Keep in mind that JBLU features a high beta (or indicator of volatility) of 1.47. This suggests that the security is much more volatile than the average stock.

Further, the bid-ask spread as represented by the midpoint price (13 cents) came out to 15.38%. That’s a conspicuously wide spread, indicating a lack of liquidity for the trade. As well, market makers typically give themselves a generous margin of safety for transactions that are difficult to properly place. Taking into account the spread and the time to expiration, the puts on JBLU stock represent an aggressive wager.

Interestingly, the recent puts go against the current options sentiment for JetBlue. According to data from Barchart.com, the put/call open interest ratio stands at 0.56. Usually, the delineation between bullish and bearish sentiment is 0.70, with figures below this threshold indicating optimism for the underlying security.

That said, analysts are starting to lose patience with JBLU stock. Three months ago, among eight analysts, half placed a “hold” rating on the discount airliner. In the current month, seven out of ten covering analysts rate JBLU as a “hold.”

Fundamentals Present a Worrying Picture

While the post-pandemic new normal celebrates bullishness in the face of tremendous challenges, market participants will want to approach JBLU stock with far greater caution and prudence. Fundamentally, the underlying business (and industry) confronts a troubling trend.

According to this year’s security checkpoint travel numbers provided by the Transportation Security Administration, from January through the end of August, passenger count totaled approximately 494.6 million. However, during the aforementioned period in 2019, passenger count totaled 564.5 million. In other words, comparing post-pandemic flying to pre-pandemic flying, the gap is about 12.4% down.

Inherently, such a result will gradually inspire intrepid traders to take the negative side of the trade. At no point in any of the completed months this year did 2022 passenger count outnumber 2019 results. Effectively, JetBlue is seeing its total addressable market gradually diminish.

Further, the Federal Reserve’s stated intention to raise the benchmark interest rate to combat inflation could hurt consumer sentiment. While tightening the money supply presents a deflationary profile, such an approach could negatively affect the economy. If so, people would be extra incentivized to save their funds, not spend it on vacations they can take some other time.

Recognize the Signals

Because implementing a short position against a public company always presents risks, it would be difficult for any analyst to suggest buying put options on JBLU stock. However, the underlying narrative of pessimism toward the airliner and the overall travel industry is understandable. With consumer sentiment down and possibly poised to worsen, investing heavily on JetBlue may not be wise right now.

• Unusual Options Activity For September 20th
• Stocks Falter as T-note Yields Jump to Multiyear Highs
• Black Stone Minerals' Cash Flow From Natural Gas Could Spike With Its 10.5% Yield
• Goldilocks and the Three Bearish Stock Indexes