Montréal Exchange

July 10, 2017

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The airline industry had its share of bad press last week mainly due to the Sunwing incident, but Air Canada still managed to outperform. On Friday, July 7th, its shares price surged to 19.06$, its highest price in the last ten years following a very optimistic Q2 outlook. In the world of options, it represented a great opportunity to use some leverage to profit from a bullish move in the stock by buying a call option.

Air Canada is only scheduled to release earnings on August 4th, but if an investor would have purchased an at-the-money ($17-strike) call option expiring in August 2017 on July 4th and held it until this morning, July 10th, they would have experienced a 233% return. Air Canada shareholders would have been able to bank a 14.3% return over the same time frame, but taking on more risk ($1,732 vs $90). Buying calls or puts according to your outlook prior to a company’s earnings is a great way to trade a directional bias by committing a fraction of the capital required for stock ownership. For more information, please review the long call strategy.

 

Stock $17 August 2017
Call Option
Price on July 4th $17.32 $0.90
Price on July 10th $19.80 $3.00
Cost of the strategy (100 shares) $1,732 $90
Return (in %) 14.30% 233%
Return (in $) $248 $210

 

 



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