2 Airline Stocks that Could Soon Fly Higher

Southwest stock also tends to outperform during Labor Day week

We recently outlined the best stocks to buy before September, if history is any guide. Two airline names, Southwest Airlines Co (NYSE:LUV) and Delta Air Lines, Inc. (NYSE:DAL) found themselves on the list, and boast attractively priced options, to boot.

LUV Stock Could Break Past Key Trendline Next Month

Southwest Airlines stock is currently heading toward its fourth straight weekly win. The shares have added 22% since bottoming near the $50 level in late June, guided higher by their ascending 10-day moving average for the past month. Although the equity is still staring up at its year-to-date breakeven level, it boasts a 19% lead in the past 12 months.

The good news is that according to Schaeffer's Senior Quantitative Analyst Rocky White, LUV is one of the best S&P 500 stocks to own in September. LUV stock has ended the month of September higher seven of the past 10 years, and averaged a healthy monthly gain of 5.9%. At last check, Southwest stock was fractionally higher at $61.25. A similar September pop would place the shares above $65, near their year-to-date breakeven level.

What's more, the airline name is also among the best stocks to own ahead of the shortened Labor Day week. According to White, in the past 10 years, LUV boasts an average return of 2.3% during this holiday week, and was positive eight times.

Those wanting to speculate on LUV stock may want to consider doing so with options. Its Schaeffer's Volatility Index (SVI) of 21% ranks in the 7th annual percentile, meaning short-term options are pricing in lower-than-usual volatility expectations at the moment, a boon to potential premium buyers.

Delta Air Lines Stock Eyeing Record Highs

Looking at Delta Air Lines, the stock experienced a similar bottom to LUV earlier this summer, breaching the $49 level on July 3. A furious rally ensued, thanks to upbeat earnings and an increased dividend. DAL shares then proceeded to tack on 19%, with their 20-day moving average containing any pullbacks. The equity is now a chip-shot below its Jan. 16 record high of $60.79.

That $60 level could be in play next month, if past is precedent. According to White, DAL has ended September higher seven of the past 10 years, and averaged a healthy monthly gain of 5.5%. From its current perch of $58.52, a move of similar magnitude would place the shares above $61, a fresh record high.

In the options pits, calls have been all the rage recently. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows DAL with a 10-day call/put volume ratio of 4.90. Not only does this show that bought calls have outnumbered puts by a nearly 5-to-1 ratio, but the reading ranks in the 85th percentile of its annual range, pointing to a healthier-than-usual appetite for bullish bets of late.

Echoing this, short-term traders are more call-skewed than usual, with the security's Schaeffer's put/call open interest ratio (SOIR) of 0.43 ranking in the 4th percentile of its annual range. This indicates that near-term call open interest outweighs put open interest by a wider-than-usual margin right now.

Just like Southwest, it's a prime time to purchase premium on Delta options. The equity's SVI of 21% ranks in the 11th percentile of its annual range, indicating low volatility expectations are being priced into its short-term options.