Many believe the world has changed due to the novel coronavirus. But within one of the market’s most impacted industries, Delta Air Lines (NYSE:DAL) is poised to weather today’s seemingly impossible conditions. Let’s look at what’s happening off and on the DAL stock price chart and how one risk-adjusted solution can help investors profit from a sunnier, long-term forecast.
Much to our collective sorrow, the pandemic’s impact on the socioeconomic fabric of the United States is still very much alive and well. But it’s also true that since the pandemic’s outbreak, some well-positioned companies have come out on top.
Amazon (NASDAQ:AMZN), Zoom Video (NASDAQ:ZM), Netflix (NASDAQ:NFLX), Peloton (NASDAQ:PTON) and Teladoc (NYSE:TDOC) are among those companies benefiting. How? They all offer “essential” services in our new normal. Each of these stocks has also enriched investors as shares have hit all-time highs. They are also leading the broader averages to record-breaking gains.
The same can’t be said for the airline industry and DAL stock. It’s no surprise of course. At the height of the pandemic’s first wave, airline traffic collapsed. But airlines remain essential services despite the obviously meaningful disruption.
Which Airlines Will Survive?
That’s not to say all airlines will get past the coronavirus. Some won’t. There are roughly 700 carriers globally. And if we’re to believe the International Air Transport Association, half of all airlines could go bankrupt due to the fallout from Covid-19.
Still, and with no disrespect to Warren Buffett’s apocalyptic warning, DAL stock is in strong position to not only survive but thrive longer-term.
The latest sign Delta will take off again is the company’s move last week to amend its revolving credit line. According to Reuters, the amended facility gives Delta access to a $1.33 billion three-year facility. Of that total amount, $1.25 billion has been extended to April 2022, giving the company an extra year. Plus, the deal gives DAL a $216 million standby letter of credit facility. This also matures in April 2022.
DAL Stock Weekly Price Chart
So, who are investors to believe when it comes to Delta? I believe it’s finally time to put some trust into Delta’s price chart. That wasn’t the case a month ago as shares soared higher on upbeat American Airlines (NASDAQ:AAL) news.
In early June I warned of a likely pullback as an overbought situation in Delta tested key resistance on the weekly price chart. The advice proved correct. But an even deeper-than-anticipated correction is now offering investors an attractive spot to pick up solid technical value.
Shares of Delta have currently retraced 50% of the 113% return gained off the stock’s May bear-market low. The challenge looks healthier given it puts shares back near the high of Delta’s hammer doji bottoming candle. It is also supported by a bullish oversold stochastics crossover setup.
How to Trade Delta Air Lines Stock
In partial deference to Warren Buffett, I’d suggest buying the September $30/$35 bull call spread rather than making Delta a core stock holding.
Bottom line, this type of spread strategy allows for leveraged returns should a rally in Delta take hold. Smartly, it also contains and reduces risk in the event shares continue to falter. And if the stock crashed similar to this spring? This strategy’s solid defensive characteristics puts investors in a much stronger position to buy when others are fearful. And who knows, maybe even the Oracle of Omaha could respect that decision.
Investment accounts under Christopher Tyler’s management do not own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.