Astute Millionaire – LUV Trade

Market Context
Good day all,

First, I would like to thank all who attended last nights class. It was a great turnout with even better questions. LUV was the stock that was chosen and as mentioned, this is your class, you ask and I will teach. We are going to get long SouthWest Airlines (LUV) and hedge the stock with a put spread.

When the market opened, I was keeping a close eye on LUV and it seemed that we something was brewing if you will. Accordingly, I waited to send out the update, as it turns out the stock popped up and had we bought the shares right at the open, our put spread to hedge the shares would be considerably devalued.

At the time of this update, LUV is trading at 56.25. We are going to get long here and buy the put spread tp hedge the shares.

The Trade
We will be buying 1,000 shares of LUV

Along with the long stock position, we will hedge the shares with a put spread.

Risk & Reward
Illustrated below is the risk graph which is long stock with a put spread. As you can see we have protection on the 1,000 shares down to 53.