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Near-Term Call Volume Swells on United Continental Holdings Inc (UAL)

UAL calls were unusually popular during Tuesday's session

by 4/3/2013 9:52 AM
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United Continental Holdings Inc (NYSE:UAL - 29.68) took a minor tumble on Tuesday, after sector peer Delta Air Lines, Inc. (NYSE:DAL) lowered its first-quarter revenue outlook. Nevertheless, UAL bulls were undaunted, as roughly 55,000 calls crossed the tape during the course of the session. This was almost seven times the norm, and more than triple the number of puts exchanged.

Leading the pack was the April 30 call, where north of 9,000 contracts traded at a volume-weighted average price VWAP (VWAP) of $.0.72. A closer look at the data shows that a large portion of these near-the-money calls changed hands at the ask price, suggesting they were bought. Since this strike saw an overnight rise in open interest, it's safe to assume that at least some of the volume was comprised of new positions. Essentially, speculators are betting on UAL to ascend past the $30.72 mark (strike price plus the VWAP) by April 19th's closing bell, which is when these front-month options expire.

However, yesterday's uptick in call volume is a deviation from United Continental's recent trend. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 17,304 puts during the past two weeks, versus just 10,562 calls. The resultant 10-day put/call volume ratio of 1.64 ranks higher than 77% of similar annual readings, reflecting a healthier-than-usual appetite for puts over calls lately.

Similarly, Schaeffer's put/call open interest ratio (SOIR) for UAL checks in at 2.11, with puts more than doubling calls among options with a shelf-life of three months or less. This ratio is just 2 percentage points shy of an annual peak, confirming near-term traders have rarely been more put-heavy toward the airline concern during the last 12 months. In fact, the front-month series alone is home to a host of put open interest, with nearly 10,600 contracts residing at the 29 strike. This heavy accumulation of bearish bets could end up translating into options-related support down the road.

This prevailing pessimistic attitude toward United Continental Holdings Inc is rather puzzling, considering the equity boasts a year-to-date gain of almost 27%, as well as a year-over-year advance of more than 35%. The stock has also bested the broader S&P 500 Index (SPX) by almost 17 percentage points during the past two months. On the charts, the shares remain perched atop their 10-week moving average, which has acted as support since November.


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