The Fundamentals
For us that live in the states we all know Delta Airlines. They are in just about every major airport in the United States of America. Well the same way that many Americans associate Delta with being one of the largest carriers when you cross the equator and head down towards South America LATAM is one of the most prominent airlines currently in south America.
LATAM Airlines originates from Santiago, Chile and has large operations centers in Argentina, Brazil, Columbia, Ecuador, Paraguay, and Peru. They can be found on the New York Stock Exchange under the Ticker “LTM”
Back in 2012 LAN airlines and Tam Airlines close on a merger which combined their routes and fleet together. This allowed them to be one of the largest in South America as they expanded routes with new advanced technology in aircraft allowing for longer routes and cheaper fuel costs. Over the last 7 years since they have shown no slowing down in terms of becoming an airline that is globally present.
LATAM has been beginning to operate into various cities in the United States and with that they have been making friends along the way. American Airlines has been using their facilities in South America to conduct maintenance checks on the aircraft. This has not only been helping American save some money on the expenses of fixing their older aircraft but it also worked to bring business to LATAM maintenance facilities.
Just last week Delta invested $1.9 Billion dollars for a 20 percent state in LATAM through offering $16 per share. Which sent the stock skyrocketing near the end of last week.
This can be seen as a very bullish move towards the South American market. When the announcement of the share purchase was made LATAM was trading at just under $9 a share. Their order at $16 a share brought it up on Friday over 30% gains and price just under $12.
Current us tension have brought some weakness to delta and it will take some time for Delta stock to rise. US conflict is affecting a majority of US based companies that deal with international economies that could be subject to trade conflict.
Today at the start of the week we are seeing some rejection of the impulsive push upwards. We are going to do a bit of testing around first before we can see some movement after the initial news. The spike can be followed be a massive rejection of over 50% of the push upwards.
Overall we can expect to see some input now with this purchase from delta. They are very well likely going to begin collaborating skills and resources to aid each other in growing their network of aircraft through the Americas as a whole
Our next major level to look at is going to be the $11 price level. (By the time I finished Editing the post it broke down below $11)
Back in April of 2019 we see how price was testing up towards the $12 price and then slowly descended down towards $11. With this sharp movement it could very easily make a quick move back down towards that same level that it once respected before. This is going based of historical data on how the stock moves.
Although if we look at how delta has managed to grow as a global airline by creating relationship and partnerships with airlines and companies this is another way of showing how Delta is working hard to maintain its status in the avaition industry.
Have you flown on LATAM Airlines before? Have you flown on Delta Airlines Before? Wouldn’t you agree that their overall style of conducting business and the markets the serve are quite similar in their own characteristics. My own personal bias is looking for positive things to come from this power play as this shows the collaborative efforts taken place to use valuable resources where they are most in demand.
The TECHNICAL
Looking for the next pull back down to create a support is going to be the first step before entering a new position on this stock. Just last week the call with the strike price of $12.50 with the expiration all the way out in March 20, 2020 rose a total of 375% in one day!
The option was trading for an opening of just $0.25 a contract and rose a total of $0.75 in value. This would have been an ideal naked option to trade. The premium is extremely low to where it could have been purchase independetly without the need of opening a spread which lowers your commisions. Then because it expires out in March of next year that means you have roughly 6 months of time in your favor for this trade to go anywhere above $12.5
The over all probability of this option being valuable are high. That does not take away the potential of the option potentially being worth nothing in the end. When you look at the risk to reward on this trade overall the numbers are still looking great.
The total amount of risk potential is only $0.25 a contract. The potential gains are infinite being that it is impossible for one to predict the potential of how high this stock can go in the next 6 months. Should the stock rise up to lets say $16 a share where Delta had made their purchase at, your option would increase in value to roughly $3.9 a contract.
A $0.25 Option contract that rises to $3.9 a contract in 6 months gets you 1560% gains on your money. Keeping in mind that just because you are buying an option with an Expiration date 6 months out does not mean that you need to wait 6 months to be able to generate profits. When you feel comfortable with your percent gains at a value that you have decided on then close your profits and secure them. Waiting till expiration will result in lose of potential gains.
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Of course all these ideas and opinions are of my own and are not meant to be taken as professional financial advise. These are my own ideas that I am sharing to engage in high quality conversations and educate others on the fundamentals and technical elements related to aviation stocks.
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