The Airline Stock Staring Down Stiff Headwinds Ahead of Earnings

UAL options traders have been quick to buy calls in recent weeks

Oct 17, 2017 at 11:32 AM
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Earnings season is kicking into high gear. In addition to a number of Dow names and tech firms stepping up to the earnings plate, travel company United Continental Holdings Inc (NYSE:UAL) is slated to unveil its quarterly results after tomorrow's close. Here's a closer look at how UAL stock has been performing ahead of earnings, and how options traders are positioning themselves.

Since hitting a record high of $83.04 in early June, shares of UAL have given back 23.9%. And while the stock has come off its late-September lows, it stalled out in the $69-$70 region, home to its early August highs, a 50% Fibonacci retracement of its third-quarter retreat, and its 100-day moving average.

ual stock daily chart oct 17

Options traders, meanwhile, have been quicker-than-usual to buy calls over puts on the airline stock in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 19,855 calls and 3,046 puts on UAL in the past 10 trading sessions. The resultant call/put volume ratio of 6.52 ranks higher than 99% of all comparable readings taken in the past year.

Echoing this call-skewed bias is UAL's Schaeffer's put/call open interest ratio (SOIR) of 0.48. Not only does this show that calls more than double puts among options set to expire in three months or less, but it ranks lower than 94% of similar readings taken over the last 12 months. In other words, short-term speculators are more call-skewed than usual.

Drilling down, heavy call open interest in both the October and November series is found at the overhead 70 strike, where a combined 17,672 contracts currently reside. This could strengthen the technical resistance mentioned above, as the hedges related to these bets begin to unwind ahead of expiration.

Historically speaking, the odds aren't in UAL's favor for a positive earnings reaction. In the past two quarters, the stock has gapped lower in the session subsequent to reporting both times -- averaging a loss of 5.1%. This time around, the options market is pricing in a 6.2% post-earnings swing for United Continental stock, regardless of direction.

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