Airline Stocks Take a Beating. Now Is the Time to Invest — in Options

While the U.S. continues to struggle through nationwide lockdowns, a sector that has taken a major beating is airline stocks, which took another dive this week after Boeing Co-CEO David Calhoun warned of more pain coming — including a major bankruptcy.

Airline stocks have cratered in the aftermath of the coronavirus lockdown, and it was recently revealed that Warren Buffett and Berkshire Hathaway sold all four of their holdings (for a huge loss).

Airline stocks then suffered another broad sell-off this week immediately after Calhoun predicted a major U.S. company will go bankrupt this year.

“I don’t want to get too predictive on that subject, but yes, most likely,” Calhoun said Tuesday on NBC’s “Today” program in reference to a major bankruptcy. “You know, something will happen when September comes around.

Since the broader stock market peaked in mid-February, all four major U.S. airlines have cratered as demand has fallen off a cliff.

Since topping out around $59 in mid-February, Delta Air Lines (NYSE: DAL) has fallen just under $20. Meanwhile, over the same time period, United Airlines Holding Inc. (Nasdaq: UAL) tanked from just over $80 a share to about $20 and is the second-worst S&P 500 stock year to date.

American Airlines Group Inc. (Nasdaq: AAL) has fallen from around $30 to $9 — its all-time low — and Southwest Airlines Co. (NYSE: LUV) has sunk from about $59 all the way under $24.

All told, the four major U.S. airline stocks have cratered just under 68% on average, which obviously is a brutal decline in such a short period — and with little to look forward to in the coming months.

But Wednesday, legendary investor Bill Miller had his own take on airline stocks, saying “you’re making a bet against the vaccine” if you don’t own them in regard to the likelihood the U.S. will have a coronavirus vaccine at some point in the next year or so.

So are airline stocks a good investment while they’re down so much?

Banyan Hill Publishing Chartered Market Technician Chad Shoop in previous discussions regarding Delta said he wouldn’t be surprised to see it flirt with its lows during the 2008 financial crisis — which was right around $5 a share.

So when it comes to the four major airlines, are any of them a buy?

According to Shoop, the Editor of Automatic Profits Alert, airline stocks are a sector to avoid for the time being, and you’re likely to find better deals as they continue to sink. 

“Airlines haven’t hit the bottom yet. These stocks are a hit with investors trying to buy the dip, but there’s more pain ahead,” he explained. “I’d avoid them for a couple more months and see where the dust settles before I’d look to own any of them.”

Back to Boeing

But what about the aforementioned plane-maker, Boeing Co. (NYSE: BA)?

Boeing has had about as tumultuous a year as any company could face. Since peaking at $440 a share on March 1, 2019, Boeing has nosedived, no pun intended.

In addition to two of its 737 Max planes crashing and killing nearly 350 people, the coronavirus has also hammered its share price because no one is buying planes right now.

Considering the stock looks undervalued compared to where it was just over a year ago, some may look at Boeing as too big to fail and a potential long-term investment at a tremendous discount.

But not so fast, says Shoop, an options trading expert who said you’re better off shorting this airline stock because he expects it to continue to fall in the near-term (check out our guide to trading options if you’re unsure).

“Boeing was struggling before the coronavirus hit the globe, but this was a disaster blow for the stock. A lot of people are looking at airlines and Boeing as a buying opportunity, but I don’t think we’ve bottomed yet,” Shoop said. “And the latest chart setup for Boeing is pointing to more pain. The stock has formed a descending triangle pattern, almost identical to the one that formed before the latest crash.

“Now it tells me to expect the stock to head even lower. In a recent video, I broke down the chart pattern for Boeing and how to trade the stock using options. The bottom line: It’s time to buy put options on Boeing as the stock continues to struggle.”

Check out Shoop’s YouTube video where he gives free, actionable advice on how to trade Boeing options, and be sure to subscribe to his channel, which features his popular “Bank it or Tank it” segments.

Editor’s note: Curious on how to trade options? Check out our complete guide here.