The S&P 500’s rally of 1.8% last Monday was quickly washed away as the bears once again sold into strength last week. By week’s end the S&P 500 had lost 1.5%, the Dow had declined by 1% and the Nasdaq had fallen by 2.6%.
The Stock – Southwest Airlines (LUV)
In an industry that has as many grumpy customers as anyone, Southwest Air has long been a relatively beloved firm, going at flying in a different way, with a far more fun culture, free checked bags, low-ish fares and no assigned seating—all of which had the firm cranking out decades of solid results, usually remaining profitable even during times when the sector was in chaos. Ironically, though, it was the firm’s move away from these areas that has lit a fire under the stock: Three weeks ago, Southwest announced a slew of changes, including assigned seating (which goes hand in hand with premium seating options), no free checked bags, red-eye flights and, in terms of its rewards program, it’s switched things up, offering far less points on regular fares but adding enhancements to certain company-branded credit cards and perks for more expensive seats; there will also be flight enhancements like better wi-fi, and importantly, the firm is aiming to save $300 million by 2026 through staff reductions and hiring freezes. (Lots of these changes will happen soon, but obviously some will be phased in during the next couple of years.) While definitely drawing the ire of frequent flyers, the moves put Southwest more in line with other carriers … which is seen as a good thing by Wall Street, since (a) most of those peers are cranking out larger profits and margins than Southwest these days, and (b) it kindles (or re-kindles) the idea that Southwest could be acquired, as these changes would make it easier for a competitor to swallow (rather than having to upend the underlying business model after the merger). Indeed, one activist hedge fund has likely been a driver of these changes, which adds smoke to a potential M&A story. Of course, how it all plays out is still something of a question mark, but it certainly looks like perception of Southwest’s future bottom line is on the rise, with an M&A angle out there as well.
Technical Analysis
LUV has been a laggard overall and, in recent months, even within its industry group, as the stock has mostly languished for the past year and a half as the mid-30s area capped any advances. The last test of that resistance came in early December, leading to a 23% slide, but the action after that certainly looks like a change in character, with the dramatic overhaul of its offerings bringing a massive-volume rally that took shares back to that mid-30s resistance level. LUV has backed off since then, but it looks like an intriguing turnaround—you could start small here with a stop around 30. Stop – 29.5
The Covered Call Trade
Buy Southwest Airlines (LUV) Stock at 33, Sell to Open April 33 Strike Calls (exp. 4/17) for $1, or a Net Price of 32 or less
Static Return: $100 per covered call (3.12%)
Breakeven: 32
Covered Call Return (if assigned): $100 per covered call (3.12%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the approximate Net Price, or 32 or less. (In this case 33 minus 1 = 32. Or another example is you could pay 32.65 for the stock and sell the call for 0.65, which also equals 32.)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Royalty Pharma (RPRX) | 34 | 31 | 29 | April 35 -- $0.75 | $0.10 |
| Exelixis (EXEL) | 38.25 | 37 | 32.5 | April 39 -- $2.20 | $0.50 |
| Uber (UBER) | 72 | 72.5 | 66 | April 70 -- $5.40 | $4.00 |
| Rubrik (RBRK) | 70 | 60 | 57 | April 70 -- $4.60 | $0.50 |
| AngloGold Ashanti (AU) | 35.75 | 38 | 30 | May 36 -- $2.10 | $3.70 |
The next Cabot Profit Booster issue will be published on April 8, 2025.
Copyright © 2025. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.
