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Airlines Continue to Innovate, and That Could Mean Gains for Traders

Airlines Continue to Innovate, and That Could Mean Gains for Traders

GlobeNewswire reported, “Spirit Airlines (Nasdaq: SAVE), one of the fastest growing airlines in Las Vegas, continues its investment in the Entertainment Capital of the World with the addition of two new cities to the Spirit network: Burbank and Sacramento.

On June 20, Spirit launched nonstop flights between McCarran International Airport (LAS) in Las Vegas and Hollywood Burbank Airport (BUR) and Sacramento International Airport (SMF), each running three times daily.  Spirit will now have 55 daily departures from Las Vegas to 29 different destinations.

In partnership with McCarran International Airport, Spirit Airlines also debuted the airport’s first automated self-service bag drop system.

Located in the ticketing concourse of Terminal 1, it allows Guests to expedite their check-in experience by paying for and tagging their own bags on the airport’s kiosks. Travelers then proceed directly to newly installed automated bag belts to present their identification and drop their bags.

Automated self-service bag drop systems, widely adopted in Europe, highlight the airport and airline’s shared vision of allowing more Guests to customize and control their travel experience.

“We are pleased to partner with Spirit Airlines as we pilot this new automated self-service bag drop system at McCarran International Airport,” said Director of Aviation Rosemary Vassiliadis.

“As a 100 percent common-use airport, we have a long history of introducing new, customer-focused technologies geared toward enhancing the passenger experience. We look forward to this rollout with Spirit and to expanding this service to more areas of our operation in the near future.”

“Our growth and investment in Las Vegas has been an ongoing mission for Spirit Airlines,” said Mike Byrom, Spirit Airlines’ Vice President of Airport Services.

“Our partnership with McCarran International Airport to install the first automated self-service bag drop system in Las Vegas is a clear message that we are thinking about every facet of our Guest experience with innovative and forward-thinking solutions to elevate our service.”

In addition to Sacramento and Burbank, Spirit will soon be adding Nashville to its network, which will include nonstop service to and from Las Vegas.  As of July 2019, Spirit will have grown nearly 50 percent in Las Vegas compared to its capacity only two years earlier.

The airline now employs more than 1,000 people in Las Vegas, and Spirit’s rapid expansion has created nearly 300 additional jobs in the last two years.

“We’re delighted by the growth of direct service to Las Vegas by our partners at Spirit Airlines,” said Chris Meyer, Vice President of Global Sales for the Las Vegas Convention and Visitors Authority.

“In the past year, Spirit has added direct service from five new markets, conveniently and affordably connecting both business and leisure travelers to our destination.

Whether you’re visiting for work or play, Vegas changes everything by taking every experience to a new level, and we’re thrilled about the opportunity to continually reach more travelers across the country.”

The stock is now challenging short term resistance.

SAVE daily chart

A break of resistance could indicate the pull back that began late last year has ended.

 SAVE weekly

A Trade for Short Term Bulls

As with the ownership of any stock, buying SAVE could require a significant amount of capital and exposes the investor to standard risks of owning a stock.

To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.

Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.

To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.

This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.

bull call spread

Source: The Options Industry Council

Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.

This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.

A Specific Trade for SAVE

Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.

When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.

For SAVE, the August 16 options allow a trader to gain exposure to the stock.

An August 16 $52.50 call option can be bought for about $1.75 and the August 16 $55 call could be sold for about $1.02. This trade would cost $0.73 to open, or $73 since each contract covers 100 shares of stock.

The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.

In this trade, the maximum loss would be equal to the amount spent to open the trade, or $73.

The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.

For this trade in SAVE the maximum gain is $1.77 ($55 – $52.50= $250; $2.50 – $0.73 = $1.77). This represents $177 per contract since each contract covers 100 shares.

Most brokers will require minimum trading capital equal to the risk on the trade, or $73 to open this trade.

That is a potential gain of about 142% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.