Get a Lift From This Low-Cost Stock With a Simple Trade Strategy

As I noted in my column on Wednesday, there is a good chance that small-cap stocks will outperform their larger brethren in the last quarter of 2024. This happened in the fourth quarter of last year and the sector generally benefits from the end of tax loss selling. 

In addition, the small-cap Russell 2000 had delivered approximately half of the return of the S&P 500 through the first three quarters of this year. In the fourth quarter of 2023, the Russell rose some 14% against the approximate 9% rise from the large-cap index.

With this in mind, we are lining up one of the most disappointing small-cap names in my portfolio, Blade Air Mobility BLDE. Now I say "disappointing" in that I had high hopes for this company and its stock at the beginning of this year. Instead, the stock is basically trading where it was at the beginning of January. However, as the saying goes "when life give you lemons, make lemonade" and BLDE has been a terrific "rinse, wash, and repeat" covered call trade throughout 2024 — and one around which I have made several profitable trades using this simple option strategy.

Blade Air Mobility operates two primary businesses and one minor one. It is one of the country's largest providers of transportation services for human organs as well as the medical teams supporting them. This is a steady and recession-proof business. In the most recently completed second quarter, this business segment had record revenues of $38.4 million, up 11.5% from the same period a year ago.

The company also operates a short-distance transportation business, which primarily consists of using helicopters to transport customers to and from major airports, include those in New York City. As you might expect, this service is for high-end consumers who are in much better shape right now than lower- and middle-income consumers. Revenues rose 9% in Q2 to $20.9 million. The company short distance jet and other revenue was up 17% to $8.7 million.

The company is still losing money, but the second quarter marked the first for Blade when it produced positive adjusted EBITDA as management has done a good job pulling back on some unprofitable routes. The company’s helicopter transport business should also benefit from the arrival of modern electric aircraft, which still is a few years out. 

While the company has recently acquired some jets, most of its business model is asset-light. This is reflected in its balance sheet which has approximately $140 million worth of cash and marketable securities as of the end of the first half of 2024 against no long-term debt. The stock’s market cap is around $250 million, so the balance sheet is one of the most positive parts of the investment thesis around Blade.

I can also mitigate a huge amount of downside risk in Blade using the covered call trade outlined below, and the stock has decent liquidity given its market cap.

Option Strategy

This is how one can initiate a holding in BLDE with covered call orders. Remember, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.

Using the May $2.50 call strikes, fashion a covered call order with a net debit at $2.20 a share (net stock price - option premium). 

This strategy provides downside protection of 35% with upside potential of nearly 14% even if this stock falls 25% from here over the next seven and a half months. 

This is not a sexy trade, but a safe and solid one that should continue to work.

At the time of publication, Jensen was long BLDE.