Unusual Options Activity In United Continental (UAL)

| January 28, 2015 | 0 Comments

Unusual Trading VolumeUnusual Options Activity in United Continental (UAL)

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason… Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week:

United Continental (UAL) is one of the largest major airlines in the United States. The Chicago-based company has over 700 mainline aircraft. Check here for more info on the company.

UAL is having a solid year so far, up 10% already. The current share price of $72.24 is just 3% from the 52-week high of $74.52 and 97% above the 52-week low of $36.65.

So what does unusual options activity in UAL tell us?

Airlines are getting a big boost from the plunging price of crude oil. While jet fuel isn’t the same as normal gasoline, it still relies heavily on crude oil as its base. What’s more, fuel costs are typically about 50% of the total costs for an airline.

As such, a sharp decrease in fuel costs can do wonders for an airline’s bottom line. It also allows airlines to lower prices and attract more consumers.

Although UAL has already been on a tear higher, investors may believe the stock is going even higher.

Here’s the deal…

Over 5,000 February 90 calls in UAL were bought for the price of just $0.11 per call. Keep in mind, a call option makes money when the stock goes up (prior to expiration).

As with other straight call trades, the call buyers can only lose $0.11 per option on this trade, or $55,000 total. The breakeven point for is $90.11, and the upside is unlimited.

However, this is a rather curious trade. The stock would have to climb another 25% in less than a month for the calls to make money. Sure, it isn’t a lot to spend for a big investor, but there’s only a 2% chance it turns a profit.

Perhaps there’s more to this trade than meets the eye. Maybe the call buyer is actually short the stock and is using the calls as protection against a worst case scenario. With options, you can typically only speculate at someone’s motivations behind a trade.

Here’s the chart of UAL:

unusual option activity, a chart of UAL

As you can see from the chart, UAL has taken off this year. The stock price is well above the 50-day moving average. In order to hit $90 (and make the trade profitable), the shares would need to go parabolic. That’s one reason why this trade may be a tail-risk hedge against a short position, rather than a long bet.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis
Options Trading Research

Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com. You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.