Stable Oil and More Travel Could Keep LUV Moving Higher
Stable Oil and More Travel Could Keep LUV Moving Higher
By:Tom Preston
Southwest Airlines (LUV), the leader of low-cost air travel, has been one of the strongest Airline stocks this year
After a turbulent 2023, airline stocks have had a smoother 2024 with stable oil prices, a downtick in inflation, and hopes that an improving economy will continue to increase travel demand.
Southwest Airlines (LUV), the leader of low-cost air travel, has been one of the strongest Airlines. LUV has avoided the 737 MAX debacle and is the default choice of many consumers looking to fly.
Southwest has managed to beat earnings estimates over the past few quarters. If the trend continues at its next announcement in late April, that could keep it moving higher.
Southwest’s out of the money (OTM) calls are trading over equidistant OTM puts, indicating that the market sees risk to the upside. That might be enough for a trader to consider a bullish strategy in it.
LUV’s 45% overall IV and 42% IV rank are high enough to make its options good candidates for short premium trades.
If you think LUV might maintain its rally in the next few weeks and don’t want to take risk through its earnings announcement, the short 32 put in the April weekly expiration with 35 days to expiration (DTE) is a bullish strategy that has a 90% prob of making 50% of its max potential profit before expiry, and that generates $1.53 of positive daily theta.
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Tom Preston, tastylive chief market strategist, is responsible for the brokerge’s trading strategy, client-facing trading software and futures trading products. He contributes to Luckbox magazine and writes tastylive's Cherry Bomb newsletter. He's been trading options since 1992.
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