Investors will often get ahead of events. If a company is struggling and could near bankruptcy, shares will often collapse in anticipation. However, if a company is able to secure last-minute funding, then it’s possible that trend could reverse.
Even a partial reversal could mean triple-digit returns for shares. Investors are often willing to give a struggling company that just got a reprieve a quarter or two to turn things around.
That could be the case with Spirit Airlines (SAVE). Shares have dropped 90% over the past year as a merger deal fell through and the company’s debt load become a concern.
However, the airliner was able to extend a debt-refinancing deadline, which gives them some space to work out a deal with borrowers and avoid bankruptcy.
Shares jumped on the news, but are still inexpensive enough to see more upside if a more permanent deal can be reached.
Action to take: Speculative investors may like shares here. More conservative investors can play the overall uptrend in the larger and less leveraged airliners instead. Spirit does not pay a dividend, and shares will likely be volatile in the weeks ahead as a deal is worked out.
For traders, the March 2025 $3.00 calls, last trading for about $0.75, could see high double-digit returns or better in the months ahead. If no deal can be worked out, be prepare to exit the trade early.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.