Calls Pop on Mediocre Airline Stock Before Earnings

UAL is down 6.5% year-to-date

Deputy Editor
Apr 20, 2022 at 12:34 PM
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The shares of United Airlines Holdings Inc (NASDAQ:UAL) are up 1.6% to trade at $46.66 at last check, ahead of the company's first-quarter financial report, which is due out after the close today. Below, we will take a look at UAL's technical setup, some past post-earnings reactions, and explore some of the options activity surrounding the stock ahead of the event. 

On the charts, United Airlines stock has contented with pressure from the 320-day moving average for much of the year, save a brief, non-consecutive respite in mid February. By early March, the shares pulled back back near the $30 level as headwinds rolled in following Russia's invasion of Ukraine. UAL's year-to-date breakeven level has been a point of contention as well, with the shares oscillating around the area, which they now sit 6.5% above. 

UAL Chart April 15

And it looks like things could get bumpier before smoothing out. A look at United Airlines stock's history of post-earnings reactions during the past two years shows a very negative response, with just one positive occurrence coming in the form of a 3.8% pop after its July report. UAL averaged a post-earnings swing of 5% the last eight quarters, regardless of direction. This time around, the options market is pricing in a slightly higher move of 7.3%.

Today, the equity's options pits are running at nearly double their intraday average volume, with 47,000 calls and 17,000 puts traded so far. The two most popular contracts are the June 50 and 45 calls, while new positions are being bought to open at the weekly 4/22 43-strike call.

More broadly, options traders have favored calls of late. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), UAL sports a 10-day call/put volume ratio of 6.93, which stands higher than 98% of readings from the past 12 months. In other words, calls have rarely been more popular during this timeframe. 

Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) stands higher than just 25% of annual readings. This means short-term options traders have rarely been more call-biased in the past year. 

Lastly, options for United Airlines stock are cheaper than usual at the moment. This is according to its Schaeffer's Volatility Index (SVI) of 53%, which sits in the 25th percentile of its 12-month range. In simpler terms, options players are pricing in relatively low volatility expectations at the moment. 

 

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