...and Blue Skies

12/23/2005 12:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

The Hedge Fund Trader is an exceptional service from  Mark Skousen designed for those seeking more aggressive positions. Jon Najarian, in his ChangeWave Options Investor , specializes in sophisticated options trading. Both are taking a "flier" on JetBlue.

"The airline sector is getting a lift from falling crude oil prices and increased customer traffic. Last week shares of both Continental and American Airlines reached their highest levels of the year. And that's good news as well for JetBlue Airways (JBLU NASDAQ). Twelve years ago, critics scoffed at the idea of a low-cost airline operating out of New York, the most expensive city in the country. Twenty-two million customers later, no one is laughing.

"JetBlue now serves 32 cities around the US and the Caribbean. It operates a fleet of 77 Airbus A320 aircraft and has ordered 200 Embraer 190 aircraft as well as another 233 A320s from Airbus. Why is business so good? For one thing, the company offers customers something no other airline can match: all-leather seats that include a digital entertainment center offering 36 channels of free DirecTV programming. (Customers can also choose over 100 channels of XM Satellite Radio.) These in-flight benefitsand low-cost fares are rapidly setting JetBlue apart from the competition.

"Much of the airline's success is due to the man at the helm, David Neeleman. He sold his first airline, Salt Lake City-based Morris Air, to Southwest Airlines. He then went on to launch WestJet, a successful Canadian low-fare carrier. And in 1993 he founded JetBlue, the best-capitalized airline start-up in history. Customers are flocking to the company's comfortable seats and entertainment perks, keeping revenues strong. And JetBlue is the only US airline that is 100% ticketless, keeping costs under control, as well. In short, JetBlue is an excellent way to play falling oil prices...and a newly resurgent airline industry. So pick up JetBlue at market today and place a protective stop at $17."

Editor’s Note: The ChangeWave family of newsletters offers excellent services ranging from short-term trading to long-term investing. The following article from Jon ‘Dr. J.’ Najarian, co-founder of OptionMONSTER.com, is included here strictly for those readers who are fully aware of the risks and complexities of option trading.

"We have seen unusual buying in the JetBlue March 22.50 Calls, which has led us to make JetBlue our pick of the week. To fly high along with JetBlue, I recommend giving your broker instructions to buy the JBLU March 22.50 Calls (JGQCX) and sell a like number of JBLU March 25 Calls (JGQCE) for a net debit of 75 cents. Prices that work for do-it-yourselfers are paying $1.80 for the March 22.50 Calls and selling the March 25 Calls for $1.05. Our profit potential is $1.75 on that 75-cent investment, and as always, our risk is limited to just what we pay for the spread.

"The breakeven is $23.25 because, as in any bull-call spread, the breakeven is determined by adding the net cost of the spread (75 cents in this case) to the strike price of the call you are buying. The trade becomes profitable when the underlying stock crosses the $23.25 level. Likewise, while the stock is under $23.25, we are below the area where the bull-call spread registers a profit. As with any 1-to-1 bull-call spread, our risk is limited to what we pay for the spread in this case, 75 cents.

"Note that our example follows the most current prices available to us at the time of publication. Also, keep in mind that nobody knows your risk tolerance or financial situation better than you. A single bull-call spread in this example will cost you $75 plus commissions. As long as you maintain the ratio of one contract purchased against one contract sold, you can ramp up this strategy as big, or make it as small, as you'd like. This analysis does NOT include the cost of commissions while executing your trades. Good luck trading and remember that pigs get fat, but hogs get slaughtered, so don't be a hog."

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