Southwest (LUV) shares could maintain current altitude


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With roughly two weeks to go until Southwest Airlines Co. (NYSE :LUV ) announces earnings figures, an investor boosted put volume during morning trading and appears to have expressed moderate bullishness on the company throughout the near term.

At 11:28 a.m. EST, a block of 10,000 August 10 puts changed hands for 25 cents per contract, which was right at the bid price when the volume hit the tape. These near-the-money puts are home to current open interest of just 32 contracts, indicating the investor most likely traded this block to open. The options action indicates the investor collected a total premium of $250,000 to bet on limited downside in the stock, and will get to retain the entire credit if LUV shares are trading higher than $10 at August options expiration in 44 days. This means the investor will make money if the stock does not drop more than 9% during the next month. If LUV shares are trading between the strike price and the breakeven price, the investor will keep some, but not all, of the premium collected. If LUV shares drop below the breakeven price, the investor will lose money as the stock moves closer to zero (maximum loss on this trade is $9.75 in the unlikely event that the stock is trading at zero at expiration).

Shares of LUV are on the rise on the day following a positive June traffic report released this morning - LUV announced its traffic increased by 5 billion last month. LUV gained 20 cents, or nearly 2%, to $10.83 during midday trading.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Options
Referenced Stocks: LUV

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Karla Yeh

Karla Yeh

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