Delta is Ready When You Are

Delta’s old slogan has a much different feel to it, given the current pandemic. Delta used this saying back in 1968. It must have worked well, since they brought it back for an encore in 1984. Given travel dropped over 90% at the lows, Delta likely wants us to be ready quite soon!

As a frequent business traveler, I tend to fly Delta whenever possible (not a paid endorsement…). Yes, I’ve had delays and cancellations with them, but my success rate has been higher with them vs. any other airline. Also, when things do go wrong, their customer service is much better than competitors (*cough* United *cough*).

More importantly for traders and investors, they have a better balance sheet than most (Southwest’s being a notable exception Ticker: LUV) and I expect that they’ll be just fine long term.

Delta (DAL) 6 month chart.
DAL 6 month chart

In what seems like a lifetime ago, Delta peaked at 62.48 earlier this year, before hitting a low of 17.51 in May. It spent quite a bit of time between 20 and 25, before the recent run-up that many of the travel-related stocks experienced. While we have no way of knowing for sure, I don’t see DAL getting back to 62 any time soon – to return to full passenger volume will likely take at least until 2022 (my opinion). My thesis is that we’ve seen the low in DAL for at least the next month.

With that, this week we look at selling puts in Delta (Ticker: DAL). Given the amount of time Delta spent above 20 (with the exception of 3 days in May), we look for opportunities near that level. A couple ideas:

  • Shorter term – Sell June 26th 20.5 puts for 0.23
  • Medium term – Sell July 17th 20 puts for 0.60
  • Prices are at the midpoint as of 6/12/2020
  • All trade ideas are for educational purposes and do not constitute financial advice

As a reminder with short puts, you will be assigned 100 shares if DAL finishes below the strike price at expiration. For most, I would recommend doing these cash secured, meaning you have enough cash in your account to take ownership of the shares if assigned. You can then hold the shares or sell calls against them.

I am a big proponent of selling puts in names I want to add to my investment portfolio. It is basically like getting paid to buy stock at lower prices. A couple things to remember:

  1. Shares of DAL could rocket upwards and you’ll only earn the premium on the put sale.
  2. Shares of DAL could plummet below your strike price. You can sometimes roll your way out of this, but if not, you may end up holding stock for a long time waiting for it to recover – if it ever does (see JCP…). That is absolutely a risk that you must be comfortable with Before putting the trade on.

Airlines are risky plays and the premiums are higher than normal accordingly. This is a riskier put sale than most of the ones I would recommend, so I will keep my trading size smaller and I’m prepared to take ownership of the shares. While the number of travelers is way down, it is starting to recover and I believe Delta and Southwest will remain as two of the stronger airlines as we get through this.

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