Southwest Airlines Set to Soar on Tax-Cut Hopes

Barron's expects LUV to benefit from new corporate tax cuts

Managing Editor
Dec 4, 2017 at 9:27 AM
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One stock on the move today is low-cost carrier Southwest Airlines Co (NYSE:LUV), after Barron's mentioned LUV as one of the U.S.-focused companies that could benefit from the new Republican tax plan -- which passed the Senate in the early hours of Saturday morning, and features a reduced corporate tax rate as one of its key features.

LUV stock is up 2.6% at $61.50 in electronic trading, having settled last Friday at $59.92 -- up 20% year-to-date. After racking up big gains in last week's trading, Southwest shares are verging on overbought territory, sporting a 14-day Relative Strength Index (RSI) of 69.

Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows an influx of LUV calls during the past two weeks. Southwest Airlines stock's 10-day call/put volume ratio of 5.95 ranks in the 99th annual percentile, suggesting that calls have been bought to open over puts at a near-annual-high pace.

LUV has rewarded option premium buyers over the past year, according to the equity's Schaeffer's Volatility Scorecard (SVS) of 95. This indicates the stock has consistently exceeded the volatility expectations priced into its options over the last 52 weeks.

Like options traders, analysts are also optimistic toward the airline stock. Currently, 11 of the 15 brokerage firms following LUV carry "buy" or better ratings.

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