Republic Risk: A JetBlue Trade

Carl Icahn announced he'd taken a 10% stake in the airline. Here's a way to trade it.

Dear Fellow Expat:

As I said this morning, it was a great development that Carl Icahn was buying up a big stake in JetBlue Airlines (JBLU). It’s a rather good company (it’s no Delta). But there’s no doubt that this is deeply undervalued. Shares have been under pressure after the failed merger with Spirit Airlines (SAVE). That deal should never have been considered in the first place. JetBlue isn’t an airline that feels like a Greyhound Bus. Spirit is.

Shares are up 18% today. I know that some investors will be tempted to buy and hold - especially given that it’s trading well below its tangible book value of $9.80.

But instead of buying the stock and locking up capital, consider a different type of trade: a credit spread.

If you Sell to Open the JBLU $6 put for April 19, 2024, you would need about $570 in margin to cover the trade. If the stock remains above the $6.00 level through the expiration date, you might make about 5% on that trade.

But there’s another way to increase your retur…