Hertz Rides the Wave of ‘Revenge Travel’, While Options Volume Favours the Stock

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Hertz (NYSE:HTZ), once an emblem of economic turmoil during the COVID-19 pandemic, has made a resilient comeback from Chapter 11 bankruptcy, becoming symbolic of the resurgence in travel. As borders reopened, the travel industry experienced a boom, with Hertz's stock benefiting significantly from this resurgence. However, questions remain whether this so-called 'revenge travel' can provide long-term support for Hertz's stock amidst concerns of rising inflation.

On Monday, market dynamics pointed towards a favorable position for Hertz in the stock options realm. At the end of last Wednesday's session, Barchart's screener flagged Hertz's stock for unusual options volume. The total volume was 27,158 contracts against open interest of 154,489, representing a surge of 608.72% compared to the trailing one-month average. Call volume registered at 16,006 contracts, surpassing the put volume of 11,152 contracts, resulting in a put/call ratio of 0.7 - a figure that typically leans bullish.

Further insights from Fintel's options flow screener highlighted substantial block trades likely driven by institutional players. One transaction involved 601 contracts of the Dec. 15 '23 12.50 Call with a premium of $100,082. With Hertz's stock closing at $13.48 in the open market, this strike price suggests an expectation of upward movement.

However, caution is advised as Hertz's stock witnessed a nearly 22% dip over the past month. Despite some traders positioning for potential downturns, overall sentiment appears to tilt positive for last Wednesday's session.

Investors venturing into Hertz's territory are advised to tread with both optimism and caution due to heavy risks still prevalent for the company. The implied volatility (IV) curve associated with Hertz's options serves as a predictive barometer, forecasting potential price oscillations of the underlying asset. For Hertz's stock options, a discernible skew to the left emerges as strike prices diminish, indicating traders are preparing for potential downturns.

With the consumer economy displaying pronounced fragility, a defensive posture towards Hertz is not just shrewd, but perhaps essential. This complex narrative juxtaposes the revenge travel sentiment against the backdrop of looming macroeconomic challenges. While Hertz could indeed be a viable bullish play, it's important for investors to shield themselves from downside risks in these turbulent times.

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