Over the last few months we have seen countless reports and articles covering the tragedies which occurred due to the 737 Max crashes. The first one in Indonesia that resulted 189 individuals loosing their lives and the second crash that occurred just off the coast of Ethiopia which killed all 157 individuals on board. The tragedy that occurred has brought the Federal Aviation Administration to make corrective action to ensure that the safety of the flying public is maintain to the highest standard.
Various governments and aviation agencies around the world felt it was necessary to ban the aircraft entirely from entering their airspace or operating domestically. The FAA was hesitant towards grounding the aircraft and was being optimistic in terms of hoping the Boeing would work towards resolving the issues as quickly as possible. They soon found that Boeing did not slow down production and continued to create more aircraft.
It was not until U.S. President Donald Trump took affirmative action and demanded that the aircraft be all grounded and that the FAA and Boeing worked together to ensure that the aircraft issues were resolved. Many individuals felt it was not his place to make the initial call to ground the aircraft although we can now look back at the event and be grateful that he made the decision to seize the aircraft from flying before another tragedy occurs.
This has had major repercussions all through the aviation market affecting millions of flying individuals who had flights cancelled due to a lack of airworthy aircraft. The FAA has given no specific timeline towards when they will recertify the 737 MAX to fly again.
The Major Problems
The Anti-stall systems were having various issues with the sensors that it uses and the programming of the system contained many issues. There were many breakdowns that occurred within the production process of the aircraft from parts being produced in a manner that did not meet the safety standards in place.
The FAA issues a statement on Sunday based on an investigation it had placed on the production process of the aircraft and found that many of the parts being used that were improperly manufactures are raising the probability of failure due to cracking and damaging of hardware during flight.
Will all these findings on the Boeing 737 MAX the flying public has felt distrust and discomfort with not just the airlines but also the aircraft manufactures. Individuals have stated that even if the aircraft is pronounce airworthy they would still not feel safe flying on the exact made and model due to these events that are currently playing out. Overall the outlook towards these aircraft is not looking optimistic as more issues are being brought to the attention of the masses.
A look at the Market
Southwest Airlines (NYSE: LUV) has made orders for 280 aircraft and have had 31 already delivered. Their objective was to use the newer models to replace their older fleet of 737 aircraft. Since the grounding of the aircraft they have been forced to park their 31 aircraft in airplane graveyards as they wait patiently for changes to be made in software. In addition they now need to have specific parts that have been recalled exchanged by Boeing.
Lets go ahead and take a look at how their stock has reacted to issues looming around the 737 MAX.
Since the first major crash with the 737 MAX that occurred back on October 29th 2018 we can see Southwest Airlines Stock price drop dramatically from its all time highs to down below $45. The second major crash that occurred just 5 months later on March 10th, 2019 did not affect their stock price as dramatically as the first major push down. The week the stock is trading at a new low for the 2019 year as we have seen how they have been able to stay quick on their feet towards reacting to their customers needs.
They have managed to stay at the top of the industry in terms of customer satisfaction with their open conversation style of keeping the public informed of any changes that may occur and working towards ensuring to ensure that safety is the highest priority. Over all as a company the fundamentals for Southwest are strong with a $25.8 Billion market cap and revenue near $22 Billion they have shown to be a strong airline in their business plan structure in how they provide to their customers.
Overall I like to see Southwest as a fundamentally strong company based on their vision and leadership, their ability to remain profitable while other airlines struggle and their passion towards being fun and family driven.
Technically speaking there is a lot of room to go up. We closed off last week incredible bearish with heading back towards the $45 price level which is showing to be a major key level. Sentiment is weak currently as we have seen shorts taking control of this stock pushing it lower and lower. It is very easy to fall into the current trend and sell off all your shares or LUV or even start buying some PUT options to try and take advantage of the price pushing down so strong.
If you do have any current shares of LUV that you are holding onto during these bearish times I would suggest educating yourself on the idea of potentially selling some CALL options on the stock to be able to bring in some income while we wait for the stock to correct itself.
For those who have never traded options there are various vidoes and education platforms that can be used to gain a strong understand of what exactly options trading is. Lets just take the time and see a quick example of a trade that we can make right now.
With Luv currently at $47.88 (10:30 EST June 3rd 2019) lets say for example you are currently holding some stock from before and we are looking into creating some income generating strategies without selling our positions. We can create an order to sell the Call with a $49.5 stick price with the expiration in this current month on June and collect a premium of $.60 a share. With this strategy it is primarily used in strong fundamental stocks with a current sideways trend. When we sell the Call we instantly are pulling in income from the premium of the option.
Regardless of how price moves in this trade we still get to keep the premium which we collected on the front end. Should price go up and push past $49.5 the market makers will assign us on the contract and our shares that we were holding will now be sold at 49.5 bringing us in the profit of the stock price moving up $1.4 as well as the premium from the option which has already been collected.
With any kind of investing there are risk to be aware of and it is important to consult your financial advisor before making any trading decision based on articles that you have read online by other individuals. If you are looking for reputable resource to be able to gain a better education on how to trade various markets the link below can provide you a network of mentors, some with over 25 years of experience trading. They provide state of the art tools and software to be able to analyze the market with extreme precision. If you have any questions feel welcome to reach out to me via email or phone.
Take this not as a suggestions towards how to trade but as an education piece to understand that there are many different strategies that can be used when you are holding on to stock that is currently trending sideways and you are looking to be able to pull in some extra income on that stock. ending sideways. I look forward to see Southwest recover from its current downtrend and test back to its range above $50.
What are your ideas with how Southwest will play out this week after testing major lows. Will southwest continue to push down due to 737 max pressures or will their strong fundamentals and revenue pick up price and bring it back to its trading range. Post your ideas below and how ever your outlook is for this next week I personally wish you a happy trading.