While the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is up 14% year-to-date, United Continental Holdings Inc (NYSE:UAL) is down over 11%. This looks depressing for those who are long the stock but it’s not. UAL is up 27% in 12 months which is more than the SPY. It simply had a bad summer.
UAL reported earnings yesterday and the reaction is bad. Traders initially spiked it but now it’s down 3% in after hour trading. Now that the event is gone, the stock left to continue trading the patterns already in progress. This is music to my ears as a premium seller.
Today I want to reload with a bullish trade that I’ve done already a few times this year. I will again use UAL options to generate income out of thin air. When Wall Street fears a worthy stock, I sell puts and profit from their disinterest. All I need is for proven support to keep working and I profit. Time will do the heavy lifting.
Fundamentally, UAL stock is the cheapest of the major airlines. Its price-to-earnings ratio is 25% cheaper than either Delta Air Lines, Inc. (NYSE:DAL) or American Airlines Group Inc (NASDAQ:AAL). The UAL price-to-book is less than half too. So if I were to own either, UAL would be the better deal. This discrepancy is even more pronounced relative to Southwest Airlines Co (NYSE:LUV).
Technically, there is upside potential for the UAL stock if they can break through recent resistance. Then they could retest $72 per share. But this dip to $65 changes things and I look to $64 per share as first line of defense. Below that, $60 per share has been in contention since 2014 so I would expect even stronger support there.