Oil took a real hit yesterday, with WTI crude sliding nearly 3.5% to settle near $89 a barrel as the government tapped the Strategic Petroleum Reserve and hopes built for an easing of tensions with Iran. The broader market barely moved on the news, chopping in a tight range for a second straight session, but a sharp drop in crude is never a non-event. It’s one of the clearest tailwinds an entire sector can get, and I want to make sure I’m positioned in the group that benefits the most.
That’s the airlines. Fuel is one of the largest line items on every airline’s income statement, so when crude drops this fast, the earnings math improves almost immediately. Rather than guess which carrier is best positioned to capture that benefit, I ran the group through the Stock Forecast Toolbox to find the name with the cleanest setup.. Try it out for free!
The one that stood out is Delta Air Lines (DAL):
Delta has generally been the airline that leads the group on both fundamentals and price action, and with fuel costs easing, that leadership looks set to continue. The Toolbox backed that up when I ran the projection:
The model is pointing to a target of $91, and with oil pulling back the way it did, I like the setup here more than most of the other trades I’ve looked at recently.
To play it, I’m looking at the October 16th $85/$90 call debit spread, currently valued at about $1.90. There’s one important wrinkle with this one: Delta reports earnings on October 9th, and I have no interest in holding an options position through an earnings print I don’t need to sit through. That means my exit needs to happen by October 8th, the trading day before the report, regardless of where the spread is sitting at that point. I’d rather lock in a gain, or even take a smaller loss, than let quarterly numbers turn a good technical setup into a coin flip. Within that window, this spread has plenty of room to work if oil keeps easing and Delta continues acting like the leader of the group.
As a reminder, the Forecast Toolbox doesn’t just give me one prediction every week or every day. It models out high probability moves for most listed stocks in the market. I can check every stock in my portfolio to make sure I’m positioned right when I’m holding my investments, and when I’m looking for a new trade, it provides a filtered list of some of the most explosive setups so I can find the next great idea for my trading portfolio.
Make sure to take advantage of the free 7-Day Trial of the Stock Forecast Toolbox so you can see what it can do for you!
If you have any questions, never hesitate to reach out.
Keith Harwood
Keith@OptionHotline.com
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