When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (UAL) – BUY
BUY the United Airlines (UAL) March 2020 $70-$75 in-the-money vertical Bull Call spread at $4.25 or best
Opening Trade
2-18-2020
expiration date: March 20, 2020
Portfolio weighting: 10%
Number of Contracts = 24 contracts
The travel sector has been far and away the worst hit by the global Coronavirus epidemic, including hotels, cruise lines, casinos, and airlines. People are not about to pay up for a trip when they face a one in 50 chance of contracting a fatal disease from the passenger sitting next to them.
As a result, the shares have been hammered, down by 25% in a month in many cases. At these levels, the coronavirus-hit stocks have already delivered the worst case-scenario. The next big move will be to the upside, once the pandemic fades.
Not only that, with the Mad Hedge Market Timing Index at 52 level, its 2020 low, we are at the bottom end of a three-month range. The new trading range seems to be 50-95 in this massively overstimulated market.
I am therefore buying the United Airlines (UAL) March 2020 $70-$75 in-the-money vertical Bull Call spread at $4.25 or best.
This is a bet that United Airlines (UAL) will not trade below $75 by the March 20 option expiration day in 23 trading days.
Don’t pay more than $4.50 for this position or you’ll be chasing.
It turns out that (UAL) is buying my arguments. It has far and away been one of the largest buyers of its own stock over the past decade, retiring some 37% of its outstanding shares. The company is using the 24.46% Corona-induced dive to buy back even more.
United lost all of its China traffic from the virus, some 10% of the total, so a recovery should bring a 10% sales pop. Earnings in 2020 are expected to come in at $11.50 a share, $14.00 in 2021, and $16 in 2022. The current price earnings multiple stands at 14.2 X, a 33% discount to the main market multiple. That makes the shares at this level absurdly cheap.
This stock benefits from major downside support at the 200-week moving average at $73.59. At the very least it should rally back up to the 200-day moving average at $87.02.
If you don’t do options, buy the stock for a medium-term trade.
For a safer, lower volatility trade, buy the iShares Transportation Average ETF (IYT), a basket of the largest companies in this sector.
Here are the specific trades you need to execute this position:
Buy 24 March 2020 (UAL) $70 calls at………….….….…$11.25
Sell short 24 March 2020 (UAL) $75 calls at………..….$7.00
Net Cost:……………………..........…….………..………….….....$4.25
Potential Profit: $5.00 - $4.25 = $0.75
(24 X 100 X $0.75) = $1,800 or 17.64% in 23 trading days.
To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute Vertical Call and Put Debit Spreads by clicking here.
You must be logged into your account to view the video.
Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you.
The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don't execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
