Here’s a “Best in Breed” Airline Play

Today’s Biggest Airline Trades

I said it yesterday – and it came true. The travel industry is getting a bid, and airlines are one of the biggest beneficiaries.

That’s why I wasn’t surprised to see this massive options trade hit the tape:

The US Global Jets ETF (NYSEARCA:JETS) holds US airlines like Delta, United, Southwest, American, JetBlue, and more. And this big money trader thinks the uplift in the airlines will continue through February.

That’s why they bought over 46,000 of the February $23-$25 call spread, paying a total of about $0.85 on a bet that JETS will run to $25.

Today, JETS opened at $21. And I think there’s definitely more upside in the industry, especially as we head into the new year.

But I don’t want to piggyback this trade exactly. Instead of playing JETS, I’m more interested in the individual airlines it carries.

Yesterday, AAL was trading around $18 a share. And this sweep seller came in, selling 20,877 of the January 21, 2022 $19 puts for $1.81 per contract:

In total, that’s $3.7 million in premium. And when you sell an out-of-the-money (OTM) put like this, it’s like selling a covered call.

You aren’t looking for a major breakout. If you were, you’d just buy calls, right? This put sale is looking for a move above $19, maybe $20. And they’re simply taking advantage of the high volatility in the airline industry by collecting this premium.

I like this trade a lot. But AAL isn’t my favorite airline – Southwest Airlines Co. (NYSE:LUV) is. And you’ll have to check out my Watchlist to see how I’m playing it.

Best in Breed: LUV

As far as I’m concerned, LUV is the best of the best when it comes to airline stocks.

1. Southwest Airlines Co. (NYSE:LUV)

I started talking about LUV yesterday. In fact, during the Money Morning LIVE show, I mentioned a trade idea on the January $40 calls. At the time, they were trading for about $1.60.

Today, they’re at about $2.35. That’s almost a 50% profit in one day, and I’m still bullish on this name.

I think LUV has got real potential to go to $46 or $47 per share. And now, I’m looking at the January 21, 2022 $42 calls for about $1.25 on this best-in-breed airline.

2. Centennial Resource Development Inc. (Nasdaq:CDEV)

Volume profile specialist Olivia Voz brought CDEV to my attention this morning. At only $6 a share, the energy company doesn’t trade very actively. But yesterday, things were different – about 1,300 of the January $7 calls traded, and they were all buys.

That means someone’s betting on a bullish move here. Voz thinks this thing could go to $7.50, and if it does, then the January $6 calls – only $0.55 – will triple.

3. Uber Technologies Inc. (NYSE:UBER)

UBER was on a tear yesterday – and I examine exactly the path it took in today’s VIX light segment. Read on…

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Santa Claus Rally – Say Goodbye or Hello?

VIX futures expired this morning, settling at 20.83 and making January the front-month futures.

From here, I’m curious to see what the VIX does over the next two days. My light is yellow, but could change to red as early as tomorrow.

If we end up down or flat today, that sets us up for a true Santa Claus rally next week. And after yesterday’s strong market, I wouldn’t be surprised to see just that.

During past rebounds, market breadth hasn’t been great. Big-cap tech names would be soaring, keeping the market above water while smaller stocks were in the red.

But yesterday, the ratio of stocks up to down was stronger.

Uber Technologies Inc. (NYSE:UBER) was an absolute monster yesterday, heading from $39 to almost $42 by the close. And it’s up again this morning, trending higher from $42.60 as I type.

UBER Dec 2021

But yesterday’s real winners came from the gambling space. Draftkings, MGM, Caesar’s – they were all lifted higher during yesterday’s rally.

And we saw some real strength from Penn National Gaming Inc. (Nasdaq:PENN):

PENN Dec 2021

PENN sat at $46.94 on Monday’s close. Today, it’s approaching $52 a share.

It’s still a ways off from its 52-week high of $142, but I’m bullish on this name in the new year.

Sincerely,

Mark Sebastian
Founder, Profit Takeover

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