Another After-Effect of Rising Oil

Airline Down-Tick in Play

By Bryan Bottarelli
Wednesday, October 25, 2006 12:06 PM EST
Wed, 25 Oct 2006 17:06:00 GMT

Dear Bottarelli Research Member,

Another major ramification of today’s unexpected oil price jump could equate to weakness in the high-flying airline sector.

Take Alaska Air (ALK – NYSE), for example. Although we made a nice profit playing upside calls on ALK, the company has since experienced a major sell-off due to a third-quarter loss. For the three-month period ended September 30th, ALK posted a loss of $17.4 million- reversing a year-ago profit of $90.2 million. You can see what effect this has had on ALK stock:

ALK

I bring this to your attention because we could soon witness a similar situation in Continental Airlines (CAL – NYSE). As you can see by the chart, CAL is showing early signs of selling off, but it has yet to experience a big time fall like ALK.

CAL

If rising oil prices, combined with the news from ALK acts as any indication, CAL could retrace over the next few weeks and I’d like to get positioned to capitalize on the fall. Looking at the chart, a move back down to $32 could be a very realistic expectation, so let’s get positioned in some longer-dated puts to profit off this move.

PLAY: Buy the CAL December 35 Puts (CAL XG) at or under $2.45, good for the day. Current bid/ask spread is $2.20 to $2.35. Place a protective stop loss at $1.40.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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