Making Money Trading Airline Stocks

| July 7, 2008 | 0 Comments

July marks an important milestone in the financial markets.  It’s the halfway mark on the year.  It also serves as an important point to measure various investment strategies.  Every investor should pause and look at their track record.

Have you been successfully running your investments this year?

There’s a really easy way to measure success.  Do you have more money in your account now then when you started?

It’s a simple analysis and I hope the answer is a resounding “YES!”

We’ve done our part here at The Dynamic Wealth Report.  I went back through our articles from the beginning of the year.  We’ve put out a lot of great content (If I do say so myself).  I’d suggest taking a look at our archive section.  You’ll find tons of interesting thoughts and ideas about the stock market.  Many of which might make you money.

Let me give you a perfect example.

In January, we published an article that saved readers millions of dollars. . . . and could have made you rich!  Let’s take a quick step back to the beginning of the year.

The first week of January everyone watched in amazement as oil prices broke the $100 a barrel level.  I knew it wouldn’t stop there.  This global oil shock was different.

In the 1970s we experienced an oil shock that was driven by OPEC.  It was an artificial spike in oil prices that threw our economy into a tailspin.

Today’s oil shock is different.  It’s being driven by supply and demand constraints.  Namely increasing demand from India, China and other emerging growth economies.  Everyone knew that skyrocketing oil would hit certain industries hard.

This is what prompted our first industry article of the new year – “$100 Oil Spells Trouble For These Guys”

So what did I highlight?

It was simple really.  We knew that the US led the world in oil consumption, and we also knew that other economies were growing rapidly and driving up the price of oil.  Face it, Americans are oil pigs. On a per capita basis we consume twice what the Britons, Germans, and French consume.  And we eat up 13 times more the oil than the Chinese.

Indian and China are growing rapidly.  Their middle class is growing by leaps and bounds.  And they’re buying automobiles and using consumer goods like plastics that are made from or consume oil.  Clearly we have a problem.

Demand that far outstrips supply.

As I said in the original article: This demand for oil is not going away.  If anything, it will get worse.  All it’ll take is some turmoil in Venezuela or another oil producing country and you have a recipe for oil at $200.

So it wasn’t Venezuela it was Nigeria who drove prices higher.  But my thinking was spot on . . . and I still think we could see $200 oil in the next year.

My quote of the year right from the article:

Some will suffer from high oil prices more than others.  Some experts point to the automobile industry as one that will suffer the most.  No doubt they will be impacted, but I think the airline industry is headed for much worse.

My logic was simple.  Alternative power sources for cars are available, though not widespread.  They can be run on bio-diesel, ethanol, or battery power.  Cars have also been run on solar power, flywheels, and even fuel cells.

But the airlines are a different story.  They can’t use these other alternative power sources.  And only one major airline hedged its fuel needs, Southwest Airlines (LUV).  As the economy slowed, ridership fell, and the rising cost of fuel resulted in huge losses for the airline industry.

I warned everyone to exit this mess early.

I told you to get out of your holdings in the airline industry.  Then I took it another step further and suggested buying puts on United (UAL) and Delta (DAL).  Little did I realize how quickly I’d be proven right.

So what has happened since?

When I wrote this article on January 4th, United was trading at $31 and Delta was trading at just over $13.  Look what’s happened to these stocks since then.

It was bad for Delta Airlines . . .

It was worse for United Airlines . . .

UAL Chart

What’s the bottom line?

By following this one suggestion, you’d have saved yourself thousands of dollars.  And if you’d bought just a few put options you’d have made a small fortune.

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Category: Stocks

About the Author ()

The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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