Airline stocks are taking off.
In the past five trading sessions, shares of American, Delta and United are up a respective 8, 6 and 7 percent. And according to one strategist, one of those names could be set to fly even higher: Delta.
"Airline shares have been underperforming the market year-to-date, with Delta down 12 percent," options expert Stacey Gilbert said Tuesday on CNBC's "Trading Nation." But Gilbert's analysis suggests that inexpensive options prices coupled with Wall Street sentiment make the stock attractive compared to other names in the space.
First, Gilbert noted that Delta is trading at a discount relative to the average Wall Street analyst price target. Delta shares are currently trading at $43.10 and, according to FactSet, of the 17 analysts that cover the stock the average price target is $59.91. "Delta is trading at almost a 30 percent discount, which is one of the largest we've seen [in the stock] over the last two years and one of the largest discounts of all the S&P 500 stocks." To note, Morgan Stanley assumed coverage on many airline stocks on Tuesday, rating Delta as overweight with a price target of $65.
Additionally, Gilbert said that her positive outlook stems from a bullish analysis of airline stocks featured in a recent Barron's article. "They highlighted that they saw that Delta airline stocks could rally 30 percent over the next year," said Gilbert, head of derivative strategy at Susquehanna financial group.
So to make a bullish bet on Delta while limiting her downside risk, Gilbert turned to the options market. Specifically, Gilbert looked to purchase the September 41-strike calls for $3.80. Since buying a call option allows one the right but not obligation to purchase a stock at a set price at a given time, this trade is profitable if Delta shares rally above $44.80, or roughly 4 percent higher in the next three months.
"This is a great strategy to gain exposure to the upside," added Gilbert.
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