Delta Air Lines is about to report its earnings. The chart shows a head and shoulders pattern, with the neckline traced from late June through July. Delta serves many domestic and international destinations. Its success relies on passenger travel, loyalty programs, partner deals, and cargo operations to meet both leisure and business travel needs. If the head and shoulders pattern continues, Delta’s stock might drop below $46. This level, marked by a low from late June, offers some support. It’s crucial to manage risks well, as earnings days can lead to significant price swings. Traders often feel inclined to take risks on earnings days, but it’s better to trust technical analysis. If the pattern completes and momentum is on our side, we will take action; otherwise, it’s wise to wait for clearer signals. Given the head and shoulders pattern suggests a potential decline, we are thinking about bearish positions before Thursday’s earnings report. Buying puts is the most straightforward way to bet on a price drop below the $46 neckline. This approach could be profitable if there’s a significant decline after the announcement. However, the implied volatility for weekly options is high, around 55%, which is elevated for the year. This means options could be pricey, and we risk a volatility crush right after earnings are released. A bear put spread might be a more budget-friendly way to express this view while controlling our risk. We are also monitoring the broader economic situation, as rising fuel costs pose challenges for the entire airline industry. WTI crude prices have remained above $95 per barrel this quarter, up from an average of $85 last year, raising concerns about profit margins. This fundamental issue supports the bearish trend we see in the chart. The demand picture is mixed too. A recent report from the Global Business Travel Association for Q3 2025 found that corporate bookings are still about 15% lower than pre-pandemic levels. We experienced something similar after the July 2025 earnings report, where strong numbers were overshadowed by cautious future guidance. This history shows us that the outlook provided by management is as important as the actual results. For those expecting a smaller drop or just a sideways movement after the announcement, selling a bear call spread could be a good strategy to earn some premium and benefit from the anticipated decrease in volatility. Whatever strategy we choose, we must focus on disciplined position sizing. The move post-earnings could be sharp, making predefined risk levels crucial, more so than any single opinion.

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