EOT Trade Alert – April 24, 2008

April 24, 2008

Trade Alert:

    Buy UAUA June 2008 $15 Puts at $2.00 or better (UALQC) 

Brief Company Background:

United Airlines (UAUA) is one of the largest international air carriers based in the United States.  They operate more than 3,200 flights a day arriving at more than 200 U.S. domestic and international destinations.

Short-Term Catalyst:

We are trading this stock to the downside.  Rising jet fuel costs are pushing the industry into the red.  Add declining revenues because the economy is entering a recession and you have some serious reasons for this stock to suffer.

Just two days ago, the company announced earnings.  To say they were dismal is an understatement.  United reported an operating loss of $441 million in the first quarter. At this rate, they’ll lose more than $1.6 billion this year.

The company is cutting capacity and aircraft.  They are also raising ticket prices to make up for fuel costs.  I don’t know about you, but I want to pay less not more for my holiday travels.  Rising fares are going to scare away some passengers.

This can’t be the only bad news United encounters.  With more bad news, the results will be predictable.

Trade Details:

Option Ticker Symbol:	UALQC
Underlying Stock Symbol:	UAUA
Current Bid-Ask Price:	$1.50-$1.65
Option “Buy Up To” Price:	$2.00
Break-Even On Stock At Expiration:	$13.00
Maximum Risk Per Contract:	$200

Exit Strategy:

UAUA is trading at 15.40. I’d see resistance levels at 17.50 and 20.  Support levels are 14 and 13, though I’d expect the stock to set new lows over the course of the next few weeks.

Chart:

Category: EOT Trade Alert