Delta Air Lines, Inc. (DAL), United Continental Holdings Inc (UAL): Time to Gain Leverage on Airline Shares?

Using this P/E ratio, we get a $30.10 per share target for Delta Air Lines, Inc. (NYSE:DAL) and a $48.90 per share target for United Continental Holdings Inc (NYSE:UAL). Any person with basic knowledge of statistics will note that these price targets have way too many significant figures attached and when the variability in airline earnings is factored in, investors should certainly not take these figures for granted.

However, we can use these price targets as a general estimate. Keeping this in mind, investors looking for a little less speculation could go with in the money calls at $17 for Delta Air Lines, Inc. (NYSE:DAL) and $30 for United Continental Holdings Inc (NYSE:UAL). These calls tend to trade in the $4 to $5 range and $7 to $8 range, respectively. Of course, investors that are more risk tolerant and more bullish may choose out of the money calls to try to gain more leverage over the stock. Again, this would carry additional risk but increases potential returns in the process.

Risk vs. reward

When choosing how to invest, investors need to examine what their risk tolerance is and what return they expect to receive. Obviously, airline options are not for everybody, airline stock itself is not even suitable for conservative investment portfolios. But for risk tolerant investors confident in a resurgent airline industry, LEAPS may be a good way to increase exposure and get higher returns over the next few years. As a result, I currently hold Delta Air Lines, Inc. (NYSE:DAL) shares and am considering adding Delta $17 LEAPS to the more speculative side of my portfolio in the coming weeks.

Alexander MacLennan owns shares of Delta Air Lines. The Motley Fool has no position in any of the stocks mentioned. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Time to Gain Leverage on Airline Shares? originally appeared on Fool.com is written by Alexander MacLennan.

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