Some stocks rebounded quickly after the coronavirus sent the S&P 500 into a bear market in early 2020.
Other stocks — like Southwest Airlines (NYSE:LUV) — have taken a little longer to recover, but they are finally starting to gain altitude.
It took LUV more than a year to climb back above the pre-Covid high of $58.83 it set on Feb. 14, 2020, but it was finally able to do so on Feb. 24.
LUV rose to a recent high of $64.65, which is great, but even that level is below the all-time high of $66.99 the stock reached on Dec. 21, 2017.
This is a positive scenario because it tells us the stock still has plenty of room to climb without even having to break new ground.
We expect LUV to continue flying higher as the U.S. and global economies recover from the coronavirus pandemic and the company’s fundamentals improve.
LUV reported earnings last Thursday. The company missed revenue estimates by $20 million but beat earnings estimates by $1.84 per share — coming in at $2.05 billion and $0.19 per share, respectively.
While revenues were slightly lower than expected, Wall Street is excited about the earnings boost management was able to squeeze out of the revenues the company generated. Plus, management believes the airline is going to get back to breakeven cash flow by June.
LUV is in a sweet spot in the airline industry because of its domestic focus.
Air travel is picking up worldwide. But as coronavirus hot spots continue to flare up in places like India and Brazil, we think air travel within the United States is going to be much more stable and profitable.
To take advantage of this, we recommend selling to open a new put write on LUV.
We like a strike price that lines up with both the pre-Covid resistance level established by the stock in 2020 and the stock’s recent support bounce on April 21.
And we prefer the May monthly expiration for this trade, as that option chain is offering plenty of premium.
On the date of publication, John Jagerson & Wade Hansen did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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