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Continental Airlines (CAL - option chain) shares are rising today after the US Justice Department said over the weekend that it has no more antitrust concerns about CAL's proposed merger with UAL Corp. (UAUA). Now the merger only needs to gain approval from UAUA and CAL shareholders as well as the Transportation Department. The deal is expected to close by October 1. 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 CAL.CAL opened this morning at $22.23. So far today the stock has hit a low of $22.02 and a high of $25.99. As of 12:20, CAL is trading at $22.09 up 0.29 (1.3%). The chart for CAL looks bullish and S&P gives CAL a positive 5 STARS (out of 5) strong buy ranking.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $15 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 9.2% return in four months as long as CAL is above $15 at December expiration. Continental would have to fall by more than 32% before we would start to lose money. Learn more about this type of trade here.
CAL has not been below $15 since December of last year and has shown support around $20 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 CAL nor UAUA.
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Reader Comments (Page 1 of 1)
8-30-2010 @ 1:32PM
Iridium said...
Under no circumstances should this deal have been approved. The Justice Department is full of hacks that are either too stupid to see the wisdom in blocking mergers or are simply paid off to look the other way.
This merger will do nothing but cost thousands of people their jobs and increase ticket costs substantially. The day the merger was announced a plane ticket from Cleveland to LA went up $300. Continental and United share many of the same routes so they will be cutting hundreds of flights. Not to mention that the Continental hub in Cleveland is as good as gone.
IT IS TIME TO BREAK UP CORPORATIONS AND CREATE COMPETITION INSTEAD OF ALLOWING EVERY INDUSTRY TO CONSOLIDATE INTO ONE OR TWO MAJOR PLAYERS!!!!
Until we get competition back in a big way the economy will continue to deteriorate. It is time to stop rewarding large corporate shareholders and start thinking about what is good for the average worker.
It is hysterical that AT&T was broken up for being a monopoly and now the company has turned into a far larger monopolistic entity reaching into far more areas than the old company that was broken up.