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Fasten Your Seat Belts and Fly High with JetBlue Airways Corporation

Nicolas Chahine

It is hard to ignore the rise of the Transports. The iShares Dow Jones Transport. Avg. (ETF) (NYSEARCA:IYT) is up more than 14% in six months. Clearly, the sector is in favor on Wall Street. JetBlue Airways Corporation (NASDAQ:JBLU) stock is not so lucky, down 9% for the same period. But it has had its ups and downs, so this swoon shall also pass, and therein lies my opportunity.

JBLU Stock: Fasten Your Seat Belts and Fly High with JetBlue Airways Corporation

Source: Josh Hallett Flickr

Today I want to go long JBLU stock even though I worry a little about the trader reaction to the upcoming earnings. Furthermore, technically the stock could be vulnerable to further downside. It is bumping along a neckline that, if lost, could bring about a retest of $20 per share. Although this is not a forecast, it is a possibility that I have to consider.

So, instead of buying the shares outright and risking $21 with absolutely no room for error, I will use JBLU options. There I can eliminate the need to be surgical with my trade timing.

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Instead of betting on an upside move, I am more confident betting on support especially where I see value.

The JBLU stock stock is not languishing alone. United Continental Holdings Inc (NYSE:UAL) is down 12% in six months. Delta Air Lines, Inc. (NYSE:DAL) and American Airlines Group Inc (NASDAQ:AAL) are down 1%. So for some reason airlines are out of favor relative to the transports.

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This, however, doesn’t change the fact that JBLU is cheap. With a price-to-earnings ratio of 11, I have confidence that I can own the shares, especially if at a discount from here, and profit from it. This is integral to my style of trading and today’s set up.

Analysts agree with me since currently JetBlue stock is trading 11% below the average price target on Wall Street. Still I won’t bet on the hopium of higher prices. I will confidently bet that support will hold and even if it doesn’t I will own the shares at a 14% discount from here. For that, I get paid a premium today to open my trade.

The B.T.F.D. meme is alive and well in this uber-bullish market. And I want to take advantage of this dip in a quality company like JBLU.

JBLU Stock Trade Idea

The Trade: Sell JBLU Mar $18 put. This is a bullish trade for which I collect 30 cents to open. I have an 85% certitude that I will retain maximum gains. But if price falls below my strike then I own shares. I would then need to manage off my break-even point of $17.70.

Selling naked puts is daunting. Those who want to mitigate that risk can sell spreads instead.

The Alternate Trade: Sell JBLU Mar $18/$17 credit put spread. The spread has the same odds but would deliver 15% yield on risk. Neither trade require a rally to profit.

Today’s trade, although it would benefit from one, doesn’t need a rally to profit. I merely need JBLU stock to hold its support for the next few months. I am betting that the value in the stock will prevent sellers from taking too far. It is important know that if they do, then I want to own the shares at a discount from here.

Ultimately, regardless of how careful I am, investing in stocks is fraught with danger, so I never risk more than I am willing to lose.

Get my newsletter for free here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.

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