It was a less-than-friendly trip for investors in American Airlines Group Inc (NASDAQ:AAL) in Tuesday’s session. But is AAL stock really crashing or have shares of American Airlines stock landed safely? Let’s take a look and then decide on an AAL options strategy fit for either a clearing pattern to emerge or more threatening conditions ahead.
Let me explain.
American Airlines stock saw investors exiting aggressively Tuesday following ‘disappointing’ results from the world’s largest airline carrier. Shares fell 4.80% after the company updated Wall Street it expects revenue-per-mile to come in between 3% to 4%.
Tuesday’s announcement actually tightened and improved a prior forecast of 2% to 4% issued by American Airlines in January. Nevertheless and behind the session’s selling pressure in AAL shares, investors anticipated a stronger update after peers, including United Continental Holdings Inc (NYSE:UAL), raised their respective outlooks.
American Airlines Stock Daily Chart
Is it crashing or landing? For American Airlines stock investors it’s an important question on the price chart. It’s also one with a bit of compelling support for both the bear and bull camp at this juncture.
The bears can rightfully argue AAL has established a lower high, which failed, almost to the penny, as shares filled last quarter’s bearish earnings gap reaction. The bearish pivot is also notable as it essentially reversed at the prior high set in 2015 following a brief breakout attempt in January.
Lastly, shares are now firmly in bear territory below the longer-term and closely watched 200-day simple moving average following Tuesday’s pressure.
For the bulls, American Airlines stock is in a technically significant testing position. A year-long uptrend channel, a couple Fibonacci levels and February’s post-earnings and year-to-date low are all in play in-between $46-$48 a share in AAL.
Additionally, stochastics is in position to swing favorably into a bullish higher-low crossover pattern from oversold territory. The signal isn’t there yet, but given a day or two, the secondary indicator could improve as a support for bulls as shares test the technical zone described above.
American Airlines Stock Moderately Bullish Butterfly Spread
The AAL 04’ May $50 / $52.50 / $55 call butterfly is interesting for those who have reviewed the AAL options market and are inclined to go with the idea shares of American Airlines have landed, rather than being in the process of crashing further.
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Priced for 35 cents with AAL shares at $47.40, this butterfly limits risk to less than 0.50% of American Airlines stock risk and offers a profit range from $50.35 to $54.65. The max payout is $2.15 if AAL can rally 10.75% and land safely at $52.50 on expiration.
The real risk in using this butterfly as a bullish spread is if traders anticipate significantly stronger upside. At the end of the day, if AAL is above $55 at expiration, the small debit will be forfeited. With a potential earnings catalyst in late April, that could always happen. But if like me, you’re inclined to see that as an acceptable trade-off, this is great way to position with limited and reduced risk.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
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