Airline stocks, once the belle of the momentum ball, are making a comeback. In the wake of last year’s Pfizer (NYSE:PFE) vaccine, traders rushed into airlines to capitalize on the economy reopening and travel returning. As a result, between November and March, shares of all carriers rocketed higher, bringing big gains to speculators everywhere.
Those who missed the profits but have been lying in wait to cash in on the next leg higher better be paying attention. A bottoming pattern just completed in the industry exchange-traded fund and institutions are once again piling in.
To help you spot the smartest ways to play, I’m highlighting three top trade ideas in the airline stocks that boast the best setups.
Without further ado, here they are:
We’ll take the usual course: a brief chart review followed by a smart options play.
Airline Stocks Ready to Soar: Global Jets ETF (JETS)
Airline stocks have carried an extremely high correlation ever since the pandemic. With every carrier rising and falling together, the perks of stock-picking have largely disappeared. That is, when airlines are hot, they’re all hot. Which one you own has mattered far less than the fact that you simply own one. So, if you want to bet on the entire theme, then consider using the Global Jets ETF, which is Wall Street’s most popular (and liquid) diversified fund for gaming airline stocks.
Its price chart is gorgeous. Over the past two months, a symmetrical triangle pattern developed, bringing stability and a bottom to its downtrend. Last week’s upside breakout was the signal spectators have been waiting for. The follow-through has been superb, with a volume surge confirming big buyers are wading in.
To respect the funds now overbought posture, let’s go with a higher probability naked put position instead of chasing long calls.
The Trade: Sell the November $23 naked put for 57 cents.
Delta Airlines (DAL)
The flight path of Delta Airlines has been nearly identical to JETS, which makes it impossible to draw any other conclusion than that just outlined for JETS. There are three minor differences of note that might sway the potential buyer to one ticker versus the other. First, DAL trades near $44, which makes it a bit more expensive than the ETF. If you want to build a spread trade, it’s more easily deployed on Delta.
Second, DAL will have an earnings report coming next month, which slightly elevates the uncertainty. Three, as a result of said earnings, DAL trades with higher implied volatility (41% versus 37%), so you might be able to squeeze a bit more premium out of a short options strategy.
While you could echo the naked put idea suggested for JETS, I will build a bull put spread to offer variety.
The Trade: Sell the November $39/$36 bull put spread for 32 cents.
Airline Stocks Ready to Soar: Jet Blue (JBLU)
The final submission for today’s airline stocks to buy is the lowest-cost option of the bunch. Friday’s pop pulled JBLU shares above key resistance at $15.75 to complete and confirm a major bottoming pattern. It also now trades above the 50-day and 20-day moving averages. As the cheapest pick of the three, JBLU looks particularly interesting for selling puts. The margin requirement is low, giving it a higher return on investment.
By selling a put, you obligate yourself to buy 100 shares of stock at the strike price. In exchange for bringing on this obligation, you get paid a premium.
The Trade: Sell the November $15 put for 53 cents.
Consider this a bet that JBLU sits above $15 at expiration. If it does, you’ll pocket the entire $53 profit.
On the date of publication, Tyler Craig was long JETS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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