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Reopening stocks have been struggling in recent months. The Covid-19 delta variant has held buyers at bay and caused many shareholders to second-guess their bullish thesis. Industries from casinos and cruises to airlines and ride-sharing have seen their share prices tumble more than 30% from their 2021 peaks. Many were grossly oversold and due for a bounce.
Earnings provided the spark.
Investors viewed this week’s reports from Royal Caribbean Cruises (NYSE:RCL), SeaWorld Entertainment (NYSE:SEAS), Wynn Resorts (NASDAQ:WYNN), and Uber Technologies (NYSE:UBER) all worthy of purchases. Along with other so-called reopening stocks, these tickers littered the leaderboard on Thursday, with some leaping more than 7% higher.
If you’re interested in bottom fishing in these areas, it’s time to cast a line. Here are my three favorite stocks to buy.
- Carnival Corp (NYSE:CCL)
- Delta Air Lines (NYSE:DAL)
- MGM Resorts (NYSE:MGM)
Let’s take a closer look at each chart and map out an options trade to capitalize.
Reopening Stocks: Carnival Corp (CCL)
The most important takeaway of Thursday’s jump in CCL stock is that it created a higher pivot low. To entice buyers previously, prices had to push to lower levels. But not this time. It’s the first sign we’ve had of increasing demand since the stock topped in June and signals a subtle shift in character. Prices had retraced all their gains from the post-November run and were ripe for a bottom anyway.
If you want more evidence of a trend reversal, then pushing above the old pivot high at $23.40 is the next hurdle. As for me, I think the signs of stability are sufficient to justify a trade here. The lower stock cost works to the advantage of selling naked puts.
The Trade: Sell the September $20 put for 65 cents.
Your max gain is $65 per contract. If you’re willing to buy shares at a cost basis of $19.35, you could allow assignment at expiration if the put is in the money.
Delta Airlines (DAL)
Airline stocks joined cruise lines in the bullish revelry Thursday. For Delta, the jump couldn’t have come at a better time. With the bounce, DAL stock was able to form a potential double bottom pattern at the $38 support zone. Holding this is the first step to turning its daily downtrend.
Unfortunately, Friday’s follow-through gap was rejected at the declining 20-day moving average, so the reversal attempt isn’t complete.
Still, Thursday’s pop was compelling, and when you couple it with the broader turn in sentiment for reopening stocks, I think it’s worth entering a bullish-leaning trade idea.
To increase the odds of success, I’m going with another naked put trade. I would only enter this if you’re comfortable wagering that DAL will stay above $34 for the next month.
The Trade: Sell the September $34 naked put for 50 cents.
Your max gain is $50 per contract. If you’re willing to buy shares at a cost basis of $33.50, you could allow assignment at expiration if the put is in the money.
Reopening Stocks: MGM Resorts (MGM)
We’re ending with the strongest trend of the bunch. While many casinos saw their share prices destroyed over the past two months, MGM only suffered a garden-variety correction.
The relative strength makes it an easy choice over the other major industry players. This week’s earnings report brought buyers rushing back in and the price chart now sports a textbook double bottom pattern.
The $36 support zone had held firm for months now, and I think it’s worth betting that prices will remain above it moving forward. Like the previous trades, MGM’s lower share price makes selling puts a desirable trade.
The Trade: Sell the September $35 put for 70 cents.
Your max gain is $70 per contract. If you’re willing to buy shares at a cost basis of $19.35, you could allow assignment at expiration if the put is in the money
On the date of publication, Tyler Craig was long DAL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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