Appearing in part 2 of today's "Behind the Headlines" is UAL Corp. (UAUA), which was upgraded at UBS along with other airline stocks today. "Behind the Headlines" is a daily feature available on SchaeffersResearch.com. Every day, we'll focus on the day's action of newsworthy stocks that are generating a lot of attention. By digging into the stock's sentiment and technical backdrop, we hope to shed some light on the securities.
Ahead of the open today, UAL Corp. (UAUA: sentiment, chart, options) – parent of United Airlines – and some of its airline brethren earned a vote of confidence from UBS. The company handed out upgrades to Northwest Airlines (NWA), U.S. Airways (LCC), and Delta Air Lines (DAL) as well, moving the trio (and UAUA) up to "buy" from "neutral." The covering analyst also hypothesized that a major merger is likely to happen in the airline sector in the next 6 months. While a deal between DAL and NWA seems the most likely right now, the entire sector would likely move on any partnership agreement. This move put "buys" in the dominant role, according to Zacks ratings. There are now 6 ratings of "buy" or better in UAUA, along with 5 "holds."
Analysts may not be the only ones expecting a resurgence from the airline sector – Andrea Kramer reported yesterday that call action has been prevalent on the air carrier. In yesterday's options trading, which was marked by dominant put activity, UAUA was targeted by call buyers. On the International Securities Exchange (ISE), there were 6,965 UAUA calls bought to open compared with just 630 puts bought to open. The resultant call/put ratio for the day totaled 11.06, putting it among the highest ratios at the exchange. During the past 10 days, 17,178 total UAUA calls have been bought to open at the ISE, along with just 2,988 puts. The 10-day call/put ratio at the ISE stands at 5.75 for UAUA.
All of this recent trading has had a noticeable impact on the stock's overall Schaeffer's put/call open interest ratio (SOIR). Since January 3, this indicator has dropped from 0.55 to 0.44, shifting from the 19th to the 7th annual percentile. In other words, the speculative crowd has been more bullishly aligned just 7% of the time during the past 12 months.
UAL's call and put pits are both seeing some action again today, most notably at the January 20 call and put, and the January 30 call. In the front-month series, peak call open interest resides at the January 35 strike, which is out of the money by nearly 12 points and set to expire a week from Friday. There are more than 45,000 contracts open at this strike. The in-the-money 30-strike put is home to peak front-month open interest, with nearly 37,000 contracts in residence. Looking ahead to the March series, the 30 strike rules the calls roost, with more than 64,000 contracts. By contrast, the most-active put strike is the March 35, with just 3,845 open puts.
Despite the bullish moves from UBS and from the call buyers, UAUA has dropped almost 3% today, hitting a new annual low in the process. In fact, the stock is trading at its lowest point since September 2006. The shares have been in steep decline mode ever since hitting triple-top resistance in mid-October. During the past 3 months, UAUA has given back more than 50% of its value. The equity's 10-day and 20-day moving averages have helped steer it lower during this time frame.
For additional timely commentary on today's market-moving news from me and my colleagues Andrea, Elizabeth, Jocelynn, Joseph, and Mark, please visit our Schaeffer's Daily Market Blog section throughout the trading day.
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