Airline stocks got a bit of a boost Monday after oil plunged more than 7 percent to its lowest level since April. And one trader who relies heavily on the charts and options market, is placing big bets that the space could surge in the near future.
"When I look at a chart of crude oil, it looks like it's heading toward $42 and that's very good for the airlines," technical analyst and options expert Andrew Keene said Monday on CNBC's "Trading Nation."
According to Keene, there are three reasons why American Airlines could be the most attractive of the bunch. "American has the cheapest P/E in the group, we've seen unusual options activity in the stock and the chart looks like it is consolidating," said Keene, founder of Keene on the Market.
Looking at the chart of American, Keene noted that he believes the stock may have found a bottom around $39.50, near its 100-day moving average. And according to Keene, each time the stock has hit that key long-term moving average it's rallied. "I think the stock could get up to $44 by August," he said. That's a 12 percent rally in the next month.
So to make a bullish bet on American Airlines, Keene turned to the options market. Specifically, Keene purchased the August 43/44 calls spreads for 25 cents each. Since this is a bullish strategy where a trader will purchase a call and then sell a higher strike call to offset the cost, this trade is profitable if the stock rises above $43.25 or a little more than 10 percent by August expiration.
"I think this is a great way to play short oil and long American Airlines," added Keene.
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