In bear markets, investors and traders alike tend to sell first and ask questions later. That can create opportunities, provided you know how to weed through them. One opportunity occurs when there’s a clear short-term issue that will be resolved in time.
When that occurs, investors can profit from the rebound, although it will take patience… especially in a market that isn’t moving along in a bullish manner. Yet these opportunities occur all the time.
One opportunity that’s come up just this week is with Southwest Airlines (LUV). The winter storm caused the cancellation of thousands of flights, and Southwest was the worst hit. That caused shares to take a 6 percent dive on Tuesday, sending them close to their 52-week low.
Yet the company is faring well, with revenues up 33 percent in the past year. And despite slow economic growth and high energy prices, the airline is in a relatively strong position for when the weather improves.
Action to take: Investors may like shares at today’s prices with the long-term in mind. Southwest has been an industry leader for keeping costs low. The company even recently reinstated a 2 percent dividend.
For traders, the June $37.50 calls, last going for about $2.15, offer high double-digit return potential as weather normalizes and air traffic moves back towards its pre-adverse weather normal.
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 of the companies mentioned in this article.