Airlines Struggling to Maintain Altitude

Stocks across the board started todays market in an uptick and quickly experience a drop within the first few hours of the day. Some of the major companies to be hit are those smaller companies that do not have as large of a market strength to hold their value during struggling times.

There is a lot of change going on in today’s market with changes in international policies that airlines are certainly on the front line of being affected by the changes.

On my watchlist of various aviation related stocks I do watch over a few budget airlines that really struggled to hold their value over the last few days.

Spirit Airlines (SAVE)

We can look back to July 24th when Spirit airlines released their last earning report showing a negative change of 4.3% growth for the quarter. These numbers shocked the market and brought price from a high of $55 down to about $42 in just a single trading day.

Since the drop on the earnings report we have seen price continue to fall about 15% over the month of August. For long term investors Spirit is really bringing some doubt and fear in the market as we are continuing to push down to new lows.

Our next major target price would be $35 which is just about $1.2 away from where we are currently trading at. Spirit airlines needs a redeeming savior to come and bring some positive insight on the stock. They have not has a strong summer so as the holiday season comes around the corner than we can hope to see load factors and revenue increase.

Until then we can see how price is in a massive downtrend being pushed by the incredibly high volume of sell orders that are being entered in the market. We can determine this by the large red candle that is located near the bottom of my chart.

On the upside Spirit is constantly looking to new ways to enhance its customer service and on time flights which are some of the value point that they have to offer in the market place.

A majority of their fleet consists of airbus which ensures that they are able to maintain operations without any disturbance due to the grounding of the 737-Max. Moving forward Save is pushing to new lows and keeping an eye open to any announcements that can change the direction of the stock will position you for a winning trade.

JetBlue Airways (JBLU)

JetBlue stands out in the aviation industry for its customer loyalty. I have spoken to many individuals personally who prefer to only fly with JetBlue with their comfortable cabins and more flexible fares that includes items such as carry on bags at no extra cost.

Regardless of the brand loyalty over the last month JetBlue has also seen a major sell off in their stock coming town unable to break past the $20 price level. It tried to break out all through the summer time and as the month of August kicked off the just started to drop like there is no floor.

Have we finally reached the bottom of this drop or will we see price continue to drop down towards $15.50 where price has seen to respect from previous lows. Their last earning reports shows a positive report of 0.98% growth although the value of the stock has yet to reflect that.

Much of this tension is coming from the growing conflict the aviation industry is facing with new lawsuits being made against Boeing and trade tension between China. The industry as a whole has certainly been coming down on what would look to be an emergency landing as compared to a smooth glide slope.

A majority of the loss over the last quarter has been due to their slip in load factors. As aircraft begin flying less full this results in less revenue being generated by each flight which can have a major impact on the next earnings release.

Overall the stock performs well in the industry and there is great potential upside for the price to move up towards the $20 price level again. We will need to see some postive news come out soon to support any move to new highs.

Generating Income on long term stocks

Many investors enjoy holding value stocks on a long term basis. These stocks have positive outlook in the long term future although in the current time frame the stock may be currently in a slight downtrend or even trading sideways.

Selling Covered Calls on stocks that you own provide for an opportunity to be able to bring in additional cash flow on stock that you are holding for the long run. I am going to just go over the basics of how to set up selling a call on a stock that you already own on American Airlines.

Disclaimer: This example is not a trade suggestion but just an education piece on how use this strategy. I am not advising you to take any investments in any of the stocks that I discuss. This blogs purpose is to share my ideas and knowledge on the aviation industry to provide my own opinion on a specific stock.

American Airlines (AAL)

American Airlines stock follows technical very well as compared to most aviation stocks. We can clearly see how price has been trading within this down trending channel for the last year consecutively making lower highs and lower lows.

For those who are looking to hold this stock long term has certainly experienced an emotional year as the price has been bouncing between the zone. Our last earnings report showed very poor numbers for the summer months in terms of revenue and load factor.

Many investors enjoy this kind of movement for long term trading. One of the perks of American Airlines for holding long term is that it pays a $.10 dividend per share. When looking for stocks to hold long term picking stocks that pay dividends provide for an addition form on income on that stock.

If you are looking for an additional method to generate income on a stock trading sideways or slightly down you can sell out of the money calls on the stock. For example, price is currently trading at $24.60 we can look to sell the $26 call for next month.

When we sell the call we collect the premium for the option. This means that we would collect $0.41 a share upfront. Upon placing the trade you will see a credit of $0.41 a share placed in your account. In the event that price continues to drop lower the option will drop in price.

As the option drops in price you can either decide to buy the option back from the market at a discounted rate, or wait until the option expires worthless leaving you to keep the $0.41 premium.

If the stock begins to push up in value and the option looses value then you either sell the option at a loss and close the open option and allow the stock to gain value bringing you to a net profit. The other option would be to allow the options to turn in the money which would result in someone choosing to use the option you sold and buy your shares of American Airlines at $26 a share.

This would also result in a profit as you would be able to keep to premium of the option and as well profit from the change in stock price rising towards $26.

The risk that lies with selling options is being assigned on positions that you do not own. If you are going to sell covered calls you must own the stock itself to protect yourself in the event that the price rises and you get assigned on your position.

Keep up the great work and make sure to sign up to get updates on the latest trade ideas. If you have any questions make sure to leave it down in the comments sections below and I will answer you to my best ability. As always keep your eyes open to the market and happy trading!

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.