Friday, September 11, 2015

JBLU Analysis

Update 10/2/2015: I exited my covered call position on JBLU entirely in order to free up funds. Future covered call plays on JBLU will use LEAPS rather than shares for the long leg, a much cheaper alternative. 

Shares declined by 1.1% over 21 days, or a -18% annual rate. The position as a whole -- shares and options -- produced a 0.8% yield on debit, for a +13% annual rate.

I'm considering the airline JetBlue Airways Corp. (JBLU), headquartered in New York, New York, as a base for covered calls.
[JBLU in Wikipedia]


I bought JBLU shares on Sept. 11, 2015. For covered calls, I shall use the OCT series of options, which trades for the last time 35 days hence, on Oct 16.

The Company

JetBlue is a low-cost passenger carrier that serves 91 destinations in the Americas. It is the 6th largest airline in North America by passengers carried.

Analysts are positive about JBLU's prospects, coming down collectively at a 34% enthusiasm rating.

The company reports return on equity of 18%, with debt running at 73% of equity.

Earnings have been profitable in all of the past 12 quarters.

Five quarters have produced upside surprises, and seven have surprised to the downside. The most recent of the downside surprise was in the most recent quarter reported.

The earnings yield is 74.66%, compared to a 2.19% yield on 10-year U.S. Treasury notes. The company pays no dividend.

The "fair" price implied by earnings growth estimates is $91.09 per share, compared to the market price of $25.61 per share. The market discount is 28% of the implied price.

The stock is selling at 19 times earnings and also at a premium to sales. It takes $1.31 in shares to control a dollar in sales.

Institutions own 89% of shares.

JBLU next publishes earnings on Oct. 21.


JBLU on average trades 5.8 million shares a day and supports a moderate selection of option strike prices spaced $1 apart, with open interest running at three and four figures near the money.

The front-month at-the-money bid/ask spread on !calls is 9.5%, compared to 0.6% on the most traded symbol on the U.S. markets, the exchange-traded fund SPY.


Click on chart to enlarge.
JBLU 10 years weekly bars
Implied volatility stands at 38.3%, which is 1.6 times the VIX, a measure of volatility of the S&P 500 index. JBLU’s volatility stands in the 18th percentile of its annual range, a good level for a covered call combination.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

Short the $26 calls,
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money


The premium is $1.07.  The stock at the time of purchase was priced at $25.70.

Decision for My Account

I've opened a covered call position in JBLU as described above.

-- Tim Bovee, Portland, Oregon, Sept. 11, 2015


My price channel trading rules can be read here. My long-term share trading rules can be read here.  My volatility trading rules can be read here. The channel rules are based on
 the classic Turtle Trading rules, which can be read here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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