It was a mostly quiet week for the market, which isn’t terribly surprising as traders have moved past the Federal Reserve event and have turned their attention toward the election. By week’s end the S&P 500 had gained 0.4%, the Dow had rallied 0.5% and the Nasdaq had fallen 0.55%.
The Stock – United Airlines (UAL)
The persistence of the travel boom continues to be one of this year’s dominant themes, as evidenced by the latest commercial airline statistics. To date, 2024 has already set—or is expected to set—numerous records for U.S. air travel, including the highest-ever six-month total (as of June) for ticket sales, record full-year revenue (which is forecast to be nearly $1 trillion!) and record anticipated passenger revenue.
In addition, the full-time U.S. airline workforce is the highest it has been in over two decades. Moreover, while capacity is rising, some (including United’s CEO) think expansions from here will be challenging industry-wide, which should keep profits up. Collectively, these trends explain why United Airlines, the world’s second-largest airline by fleet size, has found its wings again and is cranking out giant results after the tumultuous Covid years.
The Chicago-based flyer flew a record 44 million-plus passengers in Q2, and also set a daily record at 565,000 passengers in spite of an industry-wide seating capacity constraint due to supply chain issues. It further achieved a milestone in customer satisfaction with its United app now being the most downloaded airline app with over 89% of customers engaging digitally on day of travel.
Key financial metrics were also respectable, with revenue of $15 billion increasing 6% from a year ago and per-share earnings of $4.14 beating estimates by 21 cents; additionally, the company boosted capacity by 8%. The bullish results prompted a major investment bank to place United high on its list of airline stock recommendations based on anticipated outperformance during the fall months (a reason for the stock’s strength). Another earnings booster is the recent drop in oil prices, which should filter through to jet fuel, cutting costs in the months ahead. Earnings should remain elevated this year and are expected to rally double digits in 2025, which should lead to a ton of debt reduction (more than $2 billion in the first half of this year alone) and flexibility.
Technical Analysis
UAL has been stuck between 30 and 60 for most of the past couple of years, and technically it remains so today—but the latest rush higher has us thinking the bears may be sold out. The stock was rejected at 56 in May and began a sharp slide that ended at the market’s August low. But there was no bottom-building after that, with UAL ratcheting higher ... and higher ... and higher, rallying nine weeks in a row and briefly tagging their highest level since early 2021.
Stop – 48.5
The Covered Call Trade
Buy United Airlines (UAL) Stock at 56, Sell to Open October 56 Strike Calls (exp. 10/18) for $2, or a Net Price of 54 or less
Static Return: $200 per covered call (3.7%)
Breakeven: 54
Covered Call Return (if assigned): $200 per covered call (3.7%)
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 Net Price, or 54 or less. (In this case 56 minus 2 = 54. Or another example is you could pay 55.80 for the stock and sell the call for 1.80, which also equals 54.)
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 |
| Rocket (RKT) | 20.55 | 19.15 | 16.4 | October 20 -- $1.80 | $0.65 |
| Samsara (IOT) | 46.9 | 47 | 38 | October 45 -- $3.70 | $2.75 |
| Doximity (DOCS) | 40.4 | 43.5 | 32.5 | October 40 -- $1.80 | $3.70 |
| Maplebear (CART) | 39.5 | 41 | 35 | October 40 -- $1.20 | $1.75 |
The next Cabot Profit Booster issue will be published on October 8, 2024.
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