American Airlines (AMR) gets reprieve as oil prices moderate
Posted by: admin in Industry NewsFiled under: Major movement, Good news, Industry, AMR Corp (AMR), Options, Technical Analysis, Oil
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 might 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 Might. 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 buy 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 begin to lose money. Learn more about this type of trade here.
AMR hasn’t been below $6 at all in the past year and has shown support around $6.80 recently. This trade could be risky if the cost of fuel keeps rising at a relentless pace, but even if that happens, this position could be protected by the support the stock might find around $6, where it bottomed out over the past month.
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 AMR.
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