There’s quite a bit of news surrounding Airlines recently. British Airways (OTC:BAIRY.PK) announced they would be buying 24 of Boeing’s (BA) new 787 Dreamliner while favoring 12 of Airbus’ (Privately held) larger A380 Superjumbo over Boeing’s stalwart 747.
An audio podcast of this article is available at: poweropt.com/podcasts/2007_09_27_AirlineNews.mp3
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The news indicates profits and business is good at the airline and is icing on the already rosy Boeing outlook. The Airbus outlook is somewhat more conflicted as poor sales and production delays have become closely associated with the A380.
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American Airlines (AMR), on the other hand, is looking for a way to bolster its beaten down stock price. One idea gaining popularity at the company is to sell off its AAdvantage frequent flyer program.
The argument for selling it off is too many individual components within a corporation with different growth rates and business cycles can confuse investors and ultimately lead to lower valuation. In the past investment analysts have thought the frequent flyer programs of airlines such as United (UAUA) and American might actually be worth more than the airline itself because of the financial and partnership programs they can attract.
If this latest idea of spinning off frequent flyer programs bolsters the stock of the first few carriers who adopt it, the tactic could sweep the industry.
Looking at these two tidbits of news, it may be time to look into the possibilities of covered calls on airlines and airline manufacturers. Looking back on the blog’s past recommendations we find:
June 28th Suggested United Airlines August $40 Covered Call potentially returns 9.5% Suggested American Airlines August $27.50 Covered Call potentially loses around 9%
March 30th Suggested Boeing May $90 Covered Call potentially returns 3.6%
It is also interesting to see how all of the major airlines (and Boeing) are sitting as a percentage of their 52-week range.
American is at 8% of its 52-week range. Delta (DAL) is at 41% of its 52-week range. Northwest (NWA) is at 27% of its 52-week range. Continental (CAL) is at 25% of its 52-week range. United is at 77% of its 52-week range. Boeing is at 92% of its 52-week range.
With the exception of United, most of the major US carriers are off their peak. Boeing, primarily because it has been out-competing its main commercial carrier competitor, is enjoying a highflying stock price.
For this analysis, we will assume Delta, American and Continental are undervalued. Note this assumption led to a potential 9% loss in the case of American back in June (there were a couple of poorly performing Continental trades in the blog too). Also, affecting this is the rising price of oil (Is Everyone Bullish on Big Oil?) may cut into airline profitability.
Now having noted the ubiquitous dangers in approaching airline stocks, we will naively cast aside our doubts and look at potential trades.
All of the following October trades have 23 days until expiration; the November trades have 51 days until expiration.
|Covered Call Search|
|AMR||22.02 (+0.25)||AMRKE||07 NOV 25.0 (51)||$0.70||21.32||3.2||3.3||17.3|
|DAL||17.82 (-0.05)||DALKD||07 NOV 20.0 (51)||$0.60||17.22||3.4||3.5||16.1|
|UAUA||45.77 (unch.)||UALKJ||07 NOV 50.0 (51)||$1.80||43.97||3.9||4.1||13.7|
|CAL||32.85 (-0.01)||CALKG||07 NOV 35.0 (51)||$1.95||30.9||5.9||6.3||13.3|
|CAL||32.85 (-0.01)||CALJG||07 OCT 35.0 (23)||$1.15||31.7||3.5||3.6||10.4|
|AMR||22.02 (+0.25)||AMRKX||07 NOV 22.5 (51)||$1.50||20.52||6.8||7.3||9.6|
|NWA||17.32 (+0.07)||NWAKW||07 NOV 17.5 (51)||$1.30||16.02||7.5||8.1||9.2|
|DAL||17.82 (-0.05)||DALKW||07 NOV 17.5 (51)||$1.60||16.22||9||7.9||7.9|
|UAUA||45.77 (unch.)||UALKI||07 NOV 45.0 (51)||3.9||41.87||8.5||7.5||7.5|
|AMR||22.02 (+0.25)||AMRJX||07 OCT 22.5 (23)||0.9||21.12||4.1||4.3||6.5|
|NWA||17.32 (+0.07)||NWAJW||07 OCT 17.5 (23)||0.8||16.52||4.6||4.8||5.9|
|CAL||32.85 (-0.01)||CALKF||07 NOV 30.0 (51)||4.5||28.35||13.7||5.8||5.8|
|DAL||17.82 (-0.05)||DALJW||07 OCT 17.5 (23)||1.05||16.77||5.9||4.4||4.4|
|UAUA||45.77 (unch.)||UALJI||07 OCT 45.0 (23)||2.5||43.27||5.5||4||4|
|BA||105.46 (+1.01)||BAKA||07 NOV 105.0 (51)||4.2||101.26||4||3.7||3.7|
These trades were easily found by creating a custom list with the appropriate stock symbols and then by running a simple search on PowerOptions. PowerOptions can easily provide you with these tools too, so you can begin identifying lucrative trades.
Competitors for AMR include: Delta Air Lines Inc. (DAL), Northwest Airlines Corp. (NWA), UAL Corporation (UAUA), Alaska Air Group Inc. (ALK), Continental Airlines Inc. (CAL), JetBlue Airways Corp. (JBLU), US Airways Group Inc. (LCC), Southwest Airlines Co. (LUV), and TAM S.A. (TAM).
Competitors for DAL include: AMR Corporation (AMR), Southwest Airlines Co. (LUV), UAL Corporation (UAUA), AirTran Hldgs. Inc. (AAI), Hawaiian Holdings Inc. (HA), and US Airways Group Inc. (LCC).
Competitors for UAUA include: AMR Corporation (AMR), Delta Air Lines Inc. (DAL), Northwest Airlines Corp. (NWA), Alaska Air Group Inc. (ALK), Continental Airlines Inc. (CAL), Frontier Airlines Inc. (FRNT), Hawaiian Holdings Inc. (HA), JetBlue Airways Corp. (JBLU), and Midwest Air Group Inc. (MEH).
Competitors for CAL include: AMR Corporation (AMR), Southwest Airlines Co. (LUV), and UAL Corporation (UAUA).
Competitors for BA include: Lockheed Martin Corporation (LMT), Northrop Grumman Corp. (NOC), Airbus S.A.S. (private), Applied Signal Tech. Inc. (APSG), Orbital Sciences Corp. (ORB), Raytheon Co. (RTN), and United Techs. Corp. (UTX).
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions‘ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.
[tags] Airbus S.A.S., AAI, AirTran Hldgs. Inc., ALK, Alaska Air Group Inc., AMR, AMR Corp., APSG, Applied Signal Tech. Inc., BA, Boeing Co., CAL, Continental Airlines Inc., DAL, Delta Air Lines New, FRNT, Frontier Airlines Inc., HA, Hawaiian Holdings Inc., JBLU, JetBlue Airways Corp., LCC, US Airways Group Inc., LMT, Lockheed Martin Corp., LUV, Southwest Airlines Co., MEH, Midwest Air Group Inc., NOC, Northrop Grumman Corp., NWA, Northwest Airlines Corp., ORB, Orbital Sciences Corp., RTN, Raytheon Co., TAM, TAM S.A., UAUA, UAL Corp., UTX, United Techs. Corp., covered call investment strategy, investment strategy, poweroptions, stock symbols [/tags]