Traders betting against airlines made $188 million in a single day after Warren Buffett said he sold all his shares

• In just one day, traders betting against airlines made $188 million in mark-to-market profits, according to a Monday note from Ihor Dusaniwsky, the managing director of predictive analytics at S3 Partners, a financial analysis firm.
• The airline sector slumped nearly 5% after Warren Buffett said that he'd sold all holdings in the industry during Berkshire Hathaway's annual meeting Saturday.
• "We should see continued short selling in AAL, UAL and DAL and a resumption of short selling in LUV after Buffett's comments and today's price action," Dusaniwsky wrote. "Shorts, who are already deep in the money, should be letting their profits run as long as the airline stock prices trend downward."
• Read more on Business Insider.

Warren Buffett's comments on the "big four" airlines over the weekend fueled lucrative trades for those betting against the industry.

In just one day, traders betting against airlines made $188 million in mark-to-market profits as the sector sank nearly 5% Monday on Buffett's remarks, according to a Monday note from Ihor Dusaniwsky, the managing director of predictive analytics at S3 Partners, a financial analysis firm.

The gains came after Buffett said on Saturday, during the Berkshire Hathaway annual shareholder meeting, that his company had sold all of its holdings in American Airlines, Delta Air Lines, United Airlines, and Southwest Airlines.

Buffett called holding the shares a mistake, and said he isn't sure how the industry will cope following being crushed by the coronavirus-pandemic.

"The world has changed for the airlines," said Buffett. "The future is much less clear to me about how the business will turn out."

So far in 2020, betting against the airline industry has been a lucrative trade — the entire sector is up $4.13 billion in net-of-financing mark-to-market profits, or 91%, on the year, according to S3 data. Short-sellers make profits when the stocks they bet against decline.

"We should see continued short selling in AAL, UAL and DAL and a resumption of short selling in LUV after Buffett's comments and today's price action," wrote Dusaniwsky. "Shorts, who are already deep in the money, should be letting their profits run as long as the airline stock prices trend downward."

Read more: Renowned strategist Tom Lee recommends 12 beaten-down travel stocks to buy now for an average profit of 32% during the pandemic recovery

Traders have $3.14 billion of short interest in the airline sector, and have added $635 million of new short selling in the last month, according to S3.

If airline prices start to rebound, "we can expect a quick rush to cover some of their short exposure in order to realize their mark-to-market profits," Dusaniwsky said.

In the last week, traders covered about $60 million of their short positions in the airline industry, he said. Delta had the largest amount of short covering last week, according to the note — $140 million of "buy-to-covers" decreased short exposure by 20%, S3 said.