The Best Airline Stock to Play in 2018

Posted On January 1, 2018 3:03 pm

Between the long security lines, runway delays, canceled flights, and power outages like the one in Atlanta, it’s easy to see why the Christmas holiday has been crowned the worst time to fly of the year by the U.S. Travel Association.

Now, if you’re one of the “lucky” 51 million people to travel between Dec. 15 and Jan. 4 this year, chances are you’ve got at least one horror story to share (I’ll tell you mine in a second). But even if you’re not, I’m willing to bet you’ve had your own travel nightmares at some point in time.

Either way, there’s a little-known way for you to “get your money back” from these airlines.

And the best part is, you don’t have to talk to a single customer service agent…

I’m going to be blunt here.

When it comes to “making your money back” on airlines, the best way to do it is with options. Compared to trading futures, buying and holding shares of stocks, or dollar-cost averaging into mutual funds that invest in airline stocks, options are the faster, easier, and lowest-risk route to take.

Now, there are a couple of exchange-traded funds (ETFs) with underlying airline stock holdings, like the Industrial Select Sector SPDR ETF (NYSE Arca: XLI) and the US Global Jets ETF (NYSE Arca: JETS). The top four holdings of this ETF are Southwest Airlines Co. (NYSE: LUV), Delta Airlines Inc. (NYSE: DAL), United Continental Holdings Inc. (NYSE: UAL), and American Airlines Group Inc. (Nasdaq: AAL). All of these are 11.5% and higher in weighting for the ETF, with all other stock holdings coming in under 5%.

The options activity on this ETF is very thin; hardly any options contracts are being traded, which results in very wide bid-ask spreads in the options. And even though there is a bit more options trading activity in XLI, neither is really an ideal situation for an options trader.

So we’re going to talk about the best airline stock of the four to trade in 2018.

But before we get started, I want to remind you that I’m not a stock broker or a registered financial advisor. I don’t manage others’ money, and I’m not offering any stock recommendations to buy or trade. I’m showing you what I’m looking at and what the patterns and numbers reveal about the best profit opportunities in 2018. So be sure to talk to your financial professional before placing a trade.

Now let’s get started.

LUV started the year around $50 and is now trading around $65. That’s a 15-point gain – or a 30% increase.

DAL began the year around $50 and is now around $56 – a six-point gain (or a 12% increase).

AAL started the year around $47 and is now around $51 – a four-point gain (or a 9.75% increase).

Before we get to the last one, I want to share my little “flightmare” with you about this particular airline.

My wife and I decided to fly directly from our home in Sarasota, Fla., to New York in order to avoid the Atlanta airport and that power outage. Now you probably remember the passenger who was dragged off a flight earlier this year… Our experience was nothing like that. But it still wasn’t a good one.

We got stuck on this sub-standard plane that seemed like its technology was at least a decade old and sat on the runway for two hours because of it. We had first-class seats, which seemed like a good deal – but my wife’s chair wouldn’t recline at all. There were about three flight attendants struggling to get her seat into an upright position, but couldn’t. So naturally, I switched seats with her and had to assume the “brace-for-impact” position landing into Newark. Needless to say, it wasn’t a fun ride.

And this isn’t the first time we’ve had problems, either.

So it comes as no surprise to me, personally, to see a 10.9% decrease in UAL (or eight points) since the beginning of the year.

Of these four, both LUV and DAL are making new 52-week highs. Between the two, I give the slight nod to LUV in 2018 because it had a higher point and percentage gain – which indicates a stronger performance moving ahead in both categories.

And if you asked me which option strategy I would consider, I’d tell you I’d favor taking a “flyer” on bullish Long-Term Equity Anticipation Securities (LEAPS). LEAPS are long-term stock options with expirations as far out as two and three years. LEAPS allow you to take part in a price increase without the high costs of buying the stock outright. And since LEAPS have much longer expirations, you’ve got much more time for the trade to move in your favor.

Keep in mind that this is purely a technical view for these stocks. If you want to pursue the fundamentals in each of these, I will not disparage you or that additional due diligence.

*This has been a guest post by Money Morning*

 Related: 2018 Could See the Next Recession. Here’s How to Protect Your Money. 

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