On CNBC’s “Options Action,” Tony Zhang of OptionsPlay said Southwest Airlines Co (NYSE: LUV) will be the airline that best weathers the COVID-19 storm among the major airlines.
The stock recently broke above the $44 resistance level on Pfizer Inc. (NYSE: PFE) and Moderna Inc (NASDAQ: MRNA) vaccine news, and so far it has been able to hold that level. It has also recently outperformed the S&P 500. Zhang sees a base forming around the $44 level and thinks earnings could be a catalyst that could push the stock higher.
Traditionally, Southwest has ranked as the No. 4 airline in terms of seat miles flown, an industry metric, Zhang said. But now, it has moved to No. 2. It is focused on domestic and leisure travel, and it has been expanding its network during COVID-19. Southwest also has a negative debt position.
To make a bullish bet, Zhang wants to buy the March $45/$55 call spread for a total cost of $3.45. The trade breaks even at $48.45 and can maximally make a profit of $6.55.
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