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Southwest Airlines (LUV - option chain) shares are rising today after the company reported this morning that its November traffic rose 11.7% over the year-ago period. 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 LUV.LUV opened this morning at $9.61. So far today the stock has hit a low of $9.61 and a high of $10.20. As of 11:45, LUV is trading at $9.97 up 46 cents (4.8%). The chart for LUV looks bullish and S&P gives LUV a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $8 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 a 7.1% return in threee and a half months as long as LUV is above $8 at March expiration. Southwest would have to fall by more than 19% before we would start to lose money. Learn more about this type of trade here.
ECA has not been below $8 since early September and has shown support around $8.90 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in LUV.
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