| September 26, 2014

September 26, 2014

Trade Alert:

Buy DAL November 21st 2014 $37.00 Calls at $1.75 or better

Company Background:

Delta Air Lines (DAL) is a major commercial airline.  Their mainline fleet consists of about 700 aircraft.

Short-Term Catalyst:

DAL and other airline stocks have been on a great run lately.  DAL is up a whopping 55% in the last year and 34% this year alone.

The airline industry has been riding high because the major commercial airlines are actually profitable… that hasn’t always been the case throughout history.  There’s a long list of airlines that have declared bankruptcy to reorganize or ceased operations all together.

Airlines are profitable today because of massive consolidation, cost cutting, and the introduction of new fees… like the checked bag, food and entertainment, and change fees.

And that’s not going to change anytime soon…

Airline profits soared 64% last quarter because bag fees generated $900 million.  And fees are likely to get more expensive and more things that used to be free will be offered for a charge.

And get this, the four major airlines now control 80% of all domestic air traffic. Needless to say, airlines will continue to restrict the supply of seats so they can charge more and make sure every plane is packed full of passengers.

Now, oil prices are falling and bringing down the cost of jet fuel.  So, one of the major costs of running an airline is getting a whole lot cheaper.

The news specific to Delta Air Lines is good as well…

They reported August traffic increased 3.1% year over year as consolidated capacity rose 2.7% and load factor grew 0.3%.

Despite these bullish fundamentals, DAL’s stock price has been moving lower.  The stock is now 15% below the 52-week high of $42.66.

It’s just above key support of the July and August low as well as the year-long uptrend and the 200-day moving average.  That’s three levels of support overlapping just below the current price.  It should provide a floor for DAL to begin moving higher in the days and weeks ahead.

Let’s use the recent pullback to grab some call options on DAL at a great price.

Trade Details:

Underlying Stock Symbol: DAL
Current Bid-Ask Price: $1.61 – $1.66
Option “Buy Up To” Price: $1.75
Break-Even On Stock At Expiration: $38.75
Maximum Risk Per Contract: $175


Exit Strategy:

DAL is trading at $36.28 per share.  Resistance levels will be at $40.00 and again at $42.66.  Remember, we want this stock to move higher.  Support levels will be at $35.00 and $34.50.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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