Investment Thesis: WestJet Airlines (TSX: WJA, OTC: WJAVF) is a low-cost Canadian airline with an outstanding track record of profitable growth.

The stock recently came under the whip as the federal government announced its intention to allow foreign investors to take a larger stake in Canadian airlines. Investors considered the move a sign that the main domestic airlines, WestJet and Air Canada, could face increasing competition as foreign investors may be more interested in funding competing operators.

We believe that the share-price weakness in WestJet is overdone and that the current low valuation adequately compensates for its business risks, including additional competition. Additionally, the airline’s recent results were solid, indicating an improving operating environment.

Option Strategy: Buy to open a call option with a strike price of C$21 and an April 21, 2017 expiration at or below C$130 per option (C$1.30 x 100).

Payoff Profile: The breakeven share price at expiration is $22.30. A share price at expiration that’s below the breakeven price will result in a total loss of the option premium, while a share price above breakeven will result in a profit. For instance, if the share price is at $25.50 upon expiration, the gain on this trade will be 246%.