Airline Stock Reverses Earlier Gains Despite Lofty Upgrade

The equity sports attractively priced premiums at the moment

Digital Content Manager
Nov 30, 2020 at 11:09 AM
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The shares of United Airlines Holdings Inc (NASDAQ:UAL) are down 0.5% at $44.31 at last check, backpedaling earlier gains after the company received an upgrade from Raymond James to "outperform" from "market perform." The analyst in question said the airline is taking a different approach than its peers, which could lead to a faster-than-expected recovery when the economy bounces back from the COVID-19 pandemic.

On the charts, United Airlines stock has traded mostly sideways for the past several months. Though shares more than doubled off a March 18, eight-year-low of $17.80 during the stock's June rally, overhead pressure at the $40 mark had been keeping a tight lid on the security as of late. In recent weeks, however, UAL broke through that ceiling, with newfound support from the 20-day moving average. Year-over-year, the stock remains down 51.8%.

Shorts are already hitting the exits, though there is still quite a bit of pessimism left to be unwound. Short interest dropped 21.1% in the last two reporting periods, but the 15.33 million shares sold short still account for a significant 6% of the stock's available float. 

The options pits are decidedly optimistic, with calls popular. This is per the stock's 50-day call/put volume ratio of 2.41 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 84% of readings from the past year. In simpler terms, calls are being picked up at a quicker-than-usual pace in the last two months. 

Now is certainly a great time to weigh in on United Airlines stock with options. The equity's Schaeffer's Volatility Index (SVI) of 63% sits in the extremely low 15th percentile of its annual range. In other words, UAL currently sports attractively priced premiums.

Lastly, the equity's Schaeffer's Volatility Scorecard (SVS) ranks high at 71 out of 100, meaning UAL has tended to exceed these expectations during the past year -- a boon for options buyers.

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