EOT Trade Alert – June 23, 2015
Trade Alert:
Buy LUV August 21st 2015 $36.00 calls at $1.35 or better
Company Background:
Southwest Airlines (LUV) operates passenger airlines that provide scheduled air transportation services in the United States and near-international markets.
Short-Term Catalyst:
The airline industry is in the midst of surging profitability.
A combination of fewer airlines, more seats on planes, and add-ons such as checked baggage, priority boarding, Wi-Fi, on-board meals, and extra leg room have made commercial airlines profitable.
One airline that has found a way to improve profitability without charging fees for checked bags is Southwest Airlines. They even have free in-flight WiFi… wild stuff in today’s airline industry.
As a result Southwest Airlines is the nation’s largest carrier in terms of originating domestic passengers boarded. What’s more, they’ve kept costs down by relying on the largest fleet of Boeing aircraft in the world.
However inventors haven’t been nice to LUV or other airline stock this year. LUV is currently down 17.5% year-t0-date and 26% below the 52-week high.
I think investor sentiment toward LUV is reaching a turning point.
Right now LUV is trading for around $34 per share. This was a key inflection point last year. And it is serving as a level of technical support.
What’s more, there has been news of airlines scaling back on capacity plans and raising prices.
Let’s grab call options on LUV now to profit from a rebound. Don’t forget to use a limit order when you buy these options to open the trade.
Trade Details:
| Underlying Stock Symbol: | LUV |
| Current Bid-Ask Price: | $1.20- $1.25 |
| Option “Buy Up To” Price: | $1.35 |
| Break-Even On Stock At Expiration: | $37.35 |
| Maximum Risk Per Contract: | $135 |
Exit Strategy:
LUV is trading at $34.67 per share. Resistance levels will be at $38.25 and again at $40.00. Remember, we want this stock to move higher. Support levels will be at $33.00 and $30.00. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.
Chart:
Category: EOT Trade Alert
