American Airlines (AMR) gets reprieve as oil prices moderate

AMR Corp (NYSE: AMR) shares are trading higher today helped by oil futures prices that are showing signs of losing momentum. It is possible that the speculators are getting out of oil and the price may of crude may be finding a more reasonable level. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AMR.

After hitting a one-year high of $29.32 in July, the stock hit a one-year low of $6.00 in May. AMR opened this morning at $7.36. So far today the stock has hit a low of $7.26 and a high of $7.90. As of 12:20, AMR is trading at $7.75, up $0.43 (5.9%). The chart for AMR looks neutral but improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $6 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just seven weeks as long as AMR is above $6 at July expiration. AMR would have to fall by more than 23% before we would start to lose money. Learn more about this type of trade here.